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pww.comCisco Systems, Inc., Q4 2009 Earnings Call, Aug-05-2009 - SEHK:4333

SEHK:4333

Rob Lloyd [Executives] 💬

During the Cisco Systems, Inc. Q4 2009 Earnings Call, Rob Lloyd provided updates on the company's data center business and the Unified Computing System (UCS). Here is a detailed summary of his comments:

  1. Data Center Business Update:

    • Product Portfolio Performance:
      • Had a record quarter with the Nexus 7000, which is Cisco's core data center switch.
      • Market acceptance is high across all market segments: commercial, enterprise, and service provider.
      • The Nexus 5000 and 2000 combination of unified fabric and fabric extension has approached 1,000 customers with this technology.
      • The 1000 (1-K) received its first orders this quarter, which is Cisco's virtual machine soft switch, and it's off to a good start.

  2. Unified Computing System (UCS):

    • First orders for Unified Computing were received this quarter.
    • Over the next several quarters, Cisco will be increasing the availability of this technology across more markets.
    • Cisco will be introducing, in addition to its current blade model, a series of new rack models.
    • The architecture is resonating with customers, partners, system integrators, and service providers.
    • The next couple of quarters is all about execution.

Lloyd's comments indicate that Cisco is seeing good market acceptance for its data center portfolio, including the Nexus switches and the Unified Computing System. He also mentions the company's plans for expanding the availability of these technologies and the positive reception from various stakeholders.

Blair Christie [Executives] 💬

Blair Christie, the Senior Vice President of Corporate Communications for Cisco Systems, made the following statements during the Q4 2009 Earnings Call:

  1. Introduction:

    • Welcomed everyone to the 78th quarterly conference call.
    • Introduced herself and the other executives present: John Chambers (Chairman and CEO), Frank Calderoni (Executive Vice President and Chief Financial Officer), Rob Lloyd (Executive Vice President of Worldwide Operations), Ned Hooper (Chief Strategy Officer and Senior Vice President Consumer Business), and Padmasree Warrior (Chief Technology Officer).

  2. Q4 Fiscal Year 2009 Press Release:

    • Noted that the Q4 fiscal year 2009 press release is available on US high-tech market wire and on the Cisco website at www.newsroom.cisco.com.

  3. Web Cast with Slides:

    • Reminded attendees that there is a corresponding web cast with slides containing the financial information covered during the call, as well as additional financial metrics and analysis.

  4. Financial Statements:

    • Mentioned that downloadable Q4 financial statements will be available, including revenue by product and geography, income statements, full-GAAP to non-GAAP reconciliation information, balance sheets, and cash flow statements, which can be found on the Cisco website in the Investor Relations section.

  5. Replay Information:

    • Provided details on how to access the replay of the call via telephone from August 5th through August 12th at 866-357-4205 or 203-369-0122 for international callers.
    • Noted that the replay is also available from August 5th through October 16th on Cisco’s Investor Relations website.

  6. Forward-Looking Statements Disclaimer:

    • Reminded listeners that the matters discussed during the call included forward-looking statements and were subject to risks and uncertainties detailed in the company's SEC filings.

  7. Handover to John Chambers:

    • Passed the call over to John Chambers for his commentary on the quarter.

  8. Closing Remarks:

    • Announced the date and time of the next quarterly conference call, which would reflect the first quarter fiscal 2010 results.

    • Provided information on where to find downloadable Q4 and FY2009 financial statements, including revenue segments by product and geography, income statements, full GAAP to non-GAAP reconciliation information, balance sheets, and cash flow statements.

    • Reiterated the company's policy regarding commenting on financial guidance during the quarter.

    • Invited participants to contact the Investor Relations Department with any follow-up questions.

    • Concluded the call.

John Chambers [Executives] 💬

John Chambers covered a variety of topics during the Q4 2009 Earnings Call. Here is a detailed summary of his comments:

Opening Remarks

  • Financial Performance Overview:

    • Q4 was a solid quarter financially.
    • Key financial takeaways included revenue of $8.5 billion, non-GAAP earnings per share of $0.31, and GAAP earnings per share of $0.19.
    • Exceeded the $1.5 billion expense reduction goal.
    • Non-GAAP gross margins were about 65%, and service revenues grew 5% year-over-year.
    • Generated $2 billion in cash in Q4, resulting in total cash and investments of approximately $35 billion.
    • Repurchased $800 million of stock during the quarter.

  • Sequential Order Trends:

    • Positive sequential product order growth in Q4, the first quarter with normal sequential order seasonality.
    • Sequential order growth rates were in line with normal patterns, up approximately 10% from Q3 to Q4.
    • Expected sequential order rates in Q1 to follow a normal pattern, historically down in the mid-single digits.

  • New Innovative Organization Structure:

    • The new structure of councils, boards, and working groups is operating effectively.
    • Progress in 30+ market adjacencies, including products, geographies, and solutions.

  • Expense Management:

    • Aggressively managed expenses, exceeding the goal of reducing the annualized expense run rate by $1.5 billion.
    • Realigned approximately $1 billion of resources to new market adjacencies and opportunities.

  • Focus on Growth:

    • Major expense reductions and limited restructuring completed.
    • Focus shifting to growth, starting with improvements in sequential order growth, followed by year-over-year growth.

Long-Term Vision and Strategy

  • Market Transitions:

    • Focused on key market transitions such as collaboration, virtualization, and video networking.
    • These transitions are evolving faster than anticipated.

  • Operational Efficiency:

    • Maintained a focus on operational efficiency and expense management.
    • Employees responded by exceeding stretch goals to remove $1.5 billion from the annual run rate of operating expenses.

  • Customer Feedback:

    • Customers understand the innovative management structure and business models.
    • Video architecture is seen as a key competitive advantage.

  • Product Highlights:

    • Pure Digital acquisition (Flip video) became part of Cisco.
    • Video strategy from home to service provider to enterprise is described as world-class innovation and execution.
    • Consumer Flip momentum continues to be extremely positive.
    • First million-dollar commitment for Flip cameras from an enterprise customer.

  • Revenue Guidance:

    • Revenue guidance for Q1 FY 2010 is for a decrease in the 15% to 17% range year-over-year.

Summary and Outlook

  • Positioning for Recovery:

    • Well-positioned in the industry from a vision, differentiated strategy, and execution perspective.
    • Entering the next phase of the Internet, focused on growth and productivity through collaboration enabled by network Web 2.0 technologies.

  • Market Adjacencies:

    • Investing in 30+ new market adjacencies adjacent to the core business.
    • Examples discussed included smart connected communities, small business, and smart grids.

  • Customer Segments and Geographies:

    • Discussed year-over-year growth rates for different customer segments and geographies.
    • Noted that service provider spending continues to be tight.

  • Product Review:

    • Discussed product revenue year-over-year, including routing, switching, and advanced technologies.
    • Highlighted positive starts for new products in routing and switching, such as the Nexus 5000, Nexus 7000, and ASR-1000.

  • Vision, Strategy, and Execution:

    • Industry evolution appears to be playing out as expected.
    • Differentiated strategy is achieving intended benefits for Cisco and customers.
    • Execution is on target in terms of customer partnerships, market share, and share of customer communications and IT expenditures.

  • Q1 FY 2010 Guidance:

    • Year-over-year revenue expected to decrease in the 15% to 17% range.

  • Closing Remarks:

    • Thanked employees for their contributions during challenging economic times.

    • Celebrated the upcoming 25th anniversary of Cisco as a company focused on innovation, operational excellence, and integrity.

Frank Calderoni [Executives] 💬

Frank Calderoni, the Executive Vice President and Chief Financial Officer of Cisco Systems, provided detailed insights into the financial performance and outlook of the company during the Q4 2009 Earnings Call. Here is a summary of his key points:

  1. Financial Results Overview:

    • Total revenue for Q4 FY09 was $8.5 billion, down approximately 18% year-over-year.
    • Service revenue was $1.8 billion, up approximately 5% year-over-year.
    • Product revenue was $6.7 billion, down approximately 22% year-over-year.
    • Gross margin was 65.3%, up from the previous quarter and year.

  2. Geographic Revenue Breakdown:

    • Revenue declined across all geographies, ranging from a 5% decline in Japan to a 38% decline in emerging markets.
    • U.S. and Canada revenue was down 13%, Asia-Pacific was down 20%, and European markets were down 19%.

  3. Operating Expenses:

    • Non-GAAP operating expenses were approximately $3.3 billion in Q4 FY09, up $200 million quarter-over-quarter due to project-related spending, seasonality of variable compensation, and real estate charges.
    • Operating expenses as a percentage of revenue were 39.2%, within the guidance range.

  4. Expense Reductions:

    • Cisco employees exceeded the goal to remove $1.5 billion from the annual run rate of operating expenses.
    • Limited restructuring actions resulted in the reduction of approximately 1,500 to 2,000 jobs, with the actual number slightly above the high end of the range.

  5. Financial Highlights:

    • Interest and other income was $73 million, higher than expected due to realized gains on investment sales.
    • Non-GAAP tax provision rate was 20%, lower than the previous quarter due to favorable tax benefits.
    • Non-GAAP net income for Q4 FY09 was $1.8 billion, down 23% year-over-year.
    • Non-GAAP earnings per share were $0.31, down 23% year-over-year.

  6. Full-Year Performance:

    • Total revenue for FY09 was $36.1 billion, down approximately 9% year-over-year.
    • Service revenue grew 8% to approximately $7 billion.
    • Non-GAAP net income for FY09 was $8 billion, down 17% year-over-year.

  7. Balance Sheet Strength:

    • Cash, cash equivalents, and investments were $35 billion, up $1.4 billion from the previous quarter.
    • Cash flow from operations was approximately $2 billion.
    • Deferred revenue was $9.4 billion, up approximately 6% year-over-year.

  8. Guidance for Q1 FY10:

    • Revenue is expected to decrease in the 15% to 17% range year-over-year.
    • Gross margin is expected to be approximately 64%.
    • Operating expenses are expected to be approximately 38% to 39% of revenue.
    • Interest and other income is expected to be approximately $25 million.
    • Tax provision rate is expected to be approximately 22%.

  9. Closing Remarks:

    • Frank thanked the employees for their exceptional effort in achieving the expense reduction goals and expressed satisfaction with the company's financial discipline and ability to manage profitability during challenging economic times.

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