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pww.comCisco Systems, Inc., Q4 2010 Earnings Call, Aug 11, 2010 - SEHK:4333

SEHK:4333

Laura Graves [Executives] 💬

During the Cisco Systems, Inc. Q4 2010 Earnings Call, Laura Graves, the Senior Director of Global Investor Relations for Cisco Systems, provided the following information and instructions:

  1. Introduction:

    • Gave an introduction and welcomed everyone to the 82nd quarterly conference call.
    • Mentioned she was joined by several executives including John Chambers (Chairman and CEO), Frank Calderoni (Executive Vice President and Chief Financial Officer), Rob Lloyd (Executive Vice President of Worldwide Operations), among others.

  2. Financial Information Availability:

    • Noted that the Q4 fiscal year 2010 press release was available on the U.S. high-tech Marketwire and on the Cisco website at newsroom.cisco.com.
    • Mentioned that a webcast with slides was available, containing the financial information covered during the call as well as additional financial metrics and analysis.

  3. Website Access:

    • Directed listeners to the Financial Reporting section of the Cisco website to access the webcast, slides, and financial documents.
    • Mentioned that downloadable Q4 financial statements, including revenue by product and geography, income statements, full GAAP to non-GAAP reconciliation information, balance sheets, and cash flow statements would be made available following the call.

  4. Replay Information:

    • Provided details for accessing a replay of the call via telephone from August 11 through August 18 at (866) 357-4205 or (203) 369-0122 for international callers.
    • Mentioned that a replay would also be available from August 11 through October 22 on Cisco's Investor Relations website at investor.cisco.com.

  5. Forward-Looking Statements Disclaimer:

    • Reminded listeners that the call included forward-looking statements and advised them to review the company’s detailed documents filed with the SEC, specifically the most recent annual report on Form 10-K, quarterly report on Form 10-Q, and any applicable amendments, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

  6. Unauthorized Recording Prohibition:

    • Stated that unauthorized recording of the conference call was not permitted.

  7. Call Format:

    • Passed the call over to John Chambers to discuss the new format for the quarter's conference call.

  8. Closing Remarks:

    • Provided information about the next quarterly conference call, scheduled for Wednesday, November 10, 2010, at 1:30 p.m. Pacific Time, 4:30 p.m. Eastern Time.

    • Invited listeners to tune in to Cisco's Annual Financial Conference on Tuesday, September 14, which would be webcast from the company's website.

    • Reiterated the availability of downloadable Q4 and fiscal year 2010 financial statements, including revenue segments by product and geography, income statements, full GAAP to non-GAAP reconciliation information, balance sheets, and cash flow statements on the website.

    • Reminded listeners that in light of Regulation FD, Cisco planned to retain its long-standing policy to not comment on its financial guidance during the quarter unless it was done through an explicit public disclosure.

    • Offered to answer follow-up questions and thanked everyone for their participation and continued support.

John T. Chambers [Former Chairman Emeritus] 💬

John T. Chambers provided extensive commentary during the Q4 2010 Earnings Call, covering a variety of topics. Below is a detailed summary of his remarks:

  1. Financial Performance Overview:

    • Q4 FY '10 was a strong quarter for Cisco, with record revenue of $10.8 billion, a 27% year-over-year increase.
    • Non-GAAP operating income was $3.1 billion, with a year-over-year increase of 39%.
    • Non-GAAP net income was $2.5 billion, a 36% year-over-year increase.
    • Non-GAAP earnings per share (EPS) were $0.43, a 39% year-over-year increase.
    • GAAP earnings per share were $0.33, an increase of 74% year-over-year.
    • Expense management was tight, with operating expenses at 35.4% of revenue on a non-GAAP basis.
    • Productivity remained strong, with 622,000 in revenue per employee.
    • Cash and investments were $39.9 billion.

  2. Geographic Overview:

    • Global product orders grew 23% year-over-year.
    • Emerging markets led with 35% growth, followed by Europe with mid-20s growth, and Asia Pacific and the U.S. and Canada with approximately 20% growth.
    • Japan was flat year-over-year.
    • 13 of the top 15 countries showed double-digit order growth year-over-year.

  3. Customer Segments:

    • Total product orders grew about 23% year-over-year.
    • The balance across customer segments was solid, with growth ranging from the high teens in service providers to the high 20s in the commercial marketplace.
    • Public Sector and Enterprise segments grew approximately 23% to 25% year-over-year.

  4. Products:

    • Advanced Technologies grew approximately 27% year-over-year.
    • Switching also grew at 27%.
    • Routing grew at 15% year-over-year.
    • CRS product family revenue grew 20% year-over-year, with an annualized run rate of approximately $1.2 billion.
    • ASR family revenue grew 150% year-over-year, with an annualized run rate of approximately $1 billion.
    • Nexus family revenue grew 325% year-over-year, with an annualized run rate of over $2 billion.
    • UCS product family had a significant increase in the number of new customers, reaching over 1,700 total customers.

  5. Supply Chain Challenges:

    • Supply chain constraints continued to challenge procurement components.
    • Supplier lead times have stabilized but are longer than desired.
    • Product lead times to customers are within the normal range for the vast majority of products.

  6. New Organization Structure and Business Models:

    • The new organization structure built around dynamic network organizations and new business models is enabling competitive advantages in terms of speed, scale, flexibility, and replication.
    • Success in new market adjacencies and interdependencies between adjacencies is stronger than anticipated.

  7. New Market Adjacencies:

    • Key emerging countries, data center virtualization, cloud, video, consumer, and collaboration are extensions of current focus areas.
    • New markets include Smart Grid, virtual healthcare, media solutions, sports and entertainment, Smart + Connected Communities, among others.

  8. Business Momentum:

    • Despite strong business momentum, there are challenges contributing to an unusual amount of conservatism and caution.
    • Challenges include GDP growth, job creation, and concerns coming out of Europe.
    • Customers expect a gradual return to normal economic conditions.

  9. Guidance for Q1 FY '11:

    • Revenue guidance for Q1 FY '11 is for revenue growth to increase 18% to 20% year-over-year.

  10. Future Focus:

    • Cisco will focus on what it can control and influence, including innovation and operational execution.
    • Aggressive investment in new market adjacencies with good momentum from a business perspective.

  11. Summary:

    • Cisco is in a strong position to move into new markets and expand its share of existing markets.
    • Opportunities and successes in new markets are unprecedented in the industry.
    • Planning to add over 3,000 people in the next several quarters, indicating confidence in strategy and ability to move into new market adjacencies.

Chambers expressed confidence in Cisco's ability to navigate through the challenges and capitalize on opportunities, emphasizing the company's strong financial position and innovative capabilities.

Frank A. Calderoni [Former Chief Financial Officer and Executive Vice President] 💬

Frank A. Calderoni, the Former Chief Financial Officer and Executive Vice President of Cisco Systems, provided detailed financial insights during the Q4 2010 Earnings Call. Below is a summary of his remarks:

  • Full Fiscal Year 2010 Results:

    • Total revenue for fiscal year 2010 was a record $40 billion, an increase over FY '09 revenue of $36.1 billion.
    • Switching revenue ended the year at $13.6 billion, up 12% year-over-year.
    • Routing revenue was $6.6 billion, an increase of 4% over last fiscal year.
    • Advanced Technologies revenue was up 6% year-over-year to $9.6 billion.
    • Total services revenue was approximately $7.6 billion, a growth of 9% in fiscal year 2010.
    • Total non-GAAP gross margin for the fiscal year 2010 was 65.2%, up 0.2 of a percentage point year-over-year.
    • Non-GAAP operating expenses were $14.4 billion in FY '10, up from $13.7 billion in FY '09.
    • Non-GAAP net income fiscal year 2010 was $9.4 billion, up approximately 19% from fiscal year 2009.
    • Non-GAAP earnings per share on a fully diluted basis for fiscal year 2010 were $1.61, up from $1.35 in fiscal year 2009.

  • Q4 Results:

    • Total revenue for the quarter was $10.8 billion.
    • Total product revenue of $8.8 billion was up 31% year-over-year.
    • Switching revenue was $3.6 billion, an increase of 27% year-over-year.
    • Routing revenue was $1.7 billion, up 15% year-over-year.
    • Advanced Technologies had revenue totaling $2.6 billion, representing an increase of 27% year-over-year.
    • Total services revenue was approximately $2 billion, up approximately 12% year-over-year.
    • Q4 FY '10 total non-GAAP gross margin was 64.1%, down 1.1 point quarter-over-quarter and down 1.2 points year-over-year.
    • Non-GAAP operating expenses were approximately $3.8 billion in Q4, up approximately 2% quarter-over-quarter, driven primarily by the inclusion of expenses from TANDBERG and increased investment.

  • Balance Sheet Strength:

    • The total of cash, cash equivalents, and investments for the quarter was $39.9 billion, up $755 million from the previous quarter.

  • Detailed Guidance:

    • For Q1 FY '11, total revenue is anticipated to be up approximately 18% to 20% year-over-year.
    • Total gross margin in Q1 is expected to be approximately 64%.
    • Operating expenses are expected to be approximately 37% to 38% of revenue.
    • Interest and other income are expected to be approximately $10 million in the first quarter.
    • The tax provision rate for Q1 is expected to be approximately 22%.
    • Share count is modeled to be down approximately 40 million shares quarter-over-quarter.
    • Cash flow from operations is expected to generate $1.2 billion to $1.5 billion during the first quarter.

These remarks highlight the strong financial performance of Cisco Systems during the fiscal year 2010 and provide guidance for the upcoming quarter.

Robert W. Lloyd [Former President of Development & Sales] 💬

Robert W. Lloyd highlighted the following:

  • Pipeline trends have been very strong, particularly in collaboration, where the TANDBERG acquisition has integrated well with TelePresence

  • Significant progress in market share gains in Unified Communications

  • Strong positioning in the data center portfolio to deliver cloud-like infrastructure, with the partnership with VMware, EMC, and Intel accelerating differentiation

  • Positive outlook on the U.S. Federal business, with strong forecasts and opportunities entering Q1

  • Public Sector customers globally are looking for change, and Cisco's technologies are helping them become more efficient and meet transformation requirements

  • Expectations for continued benefits as public sectors tighten their belts, with Cisco offering solutions to help them do so

  • Confidence in the forecast and pipeline of opportunities for the U.S. Federal business

  • Commitment to adding 500 new account teams, balanced across the world, by the end of August

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