SOURCE: Cisco Systems, Inc.
worldwide leader in networking for the Internet, today reported its third quarter results for
the period ending April 27, 2002.
Net sales for the third quarter of fiscal 2002 were $4.8 billion, compared to $4.7 billion in
net sales for the third quarter of fiscal 2001, an increase of 2%, and compared to $4.8
billion for the second quarter of fiscal 2002. Net income on a generally accepted
accounting principles (GAAP) basis for the third quarter of fiscal 2002 was $729 million
or $0.10 per share, compared with a net loss of $2.7 billion or $0.37 per share for the
third quarter of fiscal 2001 and net income of $660 million or $0.09 per share for the
second quarter of fiscal 2002.
Pro forma net income, which excludes the effects of acquisition charges, payroll tax on
employee stock option exercises, and certain nonrecurring items, was $838 million or
$0.11 per share for the third quarter of fiscal 2002, compared with pro forma net income
of $230 million or $0.03 per share for the third quarter of fiscal 2001 and $664 million or
$0.09 per share for the second quarter of fiscal 2002.
Net sales for the first nine months of fiscal 2002 were $14.1 billion, compared with $18.0
billion for the first nine months of fiscal 2001, a decrease of 22%. Net income on a GAAP
basis for the first nine months of fiscal 2002 was $1.1 billion or $0.15 per share,
compared with a net loss of $1.0 billion or $0.14 per share for the first nine months of
fiscal 2001. Pro forma net income was $1.8 billion or $0.25 per share for the first nine
months of fiscal 2002 compared with $2.9 billion or $0.39 per share for the same period
of fiscal 2001.
"We are very pleased with this quarter's performance, especially our year-to-year profit
increase of 264% and quarter-to-quarter increase of 26%," said John Chambers,
president and CEO of Cisco Systems. "The combination of our strong market position
and solid execution by our team produced results that clearly indicate that Cisco is well
positioned when the economy rebounds. Last year was a classic downturn. We took the critical steps to position ourselves for
the upturn, and we are beginning to see the very positive results."
Further commenting on Cisco's execution, Chambers added, "From an operational perspective, this quarter was a home run.
Our strong results led to gross margins of 63.1%, cash flows of $1.6 billion and inventory turns of 7.5 times, which exceeded
our goals. We continue to take market share from our top-ten competitors, with revenue growth of 2% year-over-year versus
a drop of 43% for these competitors."
Throughout the quarter, Cisco continued its emphasis on achieving profitable market-share gains, with a focus on growing ten
percent faster than ten selected North American competitors. Cisco's market-share momentum included leadership in key
market segments such as all areas of routing, LAN switching, security, voice over IP, IP telephony, and enterprise wireless
LANs and virtual private networks (VPNs). Cisco also experienced growth in Layer 3 fixed and modular switching, where
customers are transitioning wiring closets to more intelligent packet processing to enable quality of service (QoS) and higher
levels of security. Cisco attributes these ongoing market-share gains to its continued focus on providing customers with
networking technologies and solutions that increase both productivity and profitability, while delivering a solid return on
In the enterprise market, Cisco provides the framework for enterprise businesses to deploy networking solutions that help
enable business resilience, increase employee productivity, and mitigate network security threats. Cisco enterprise customers
continue to invest in core switching and routing platforms, as well as key networking technologies including IP telephony,
security, and mobility.
During the third quarter, Cisco introduced a new Layer 3 switching module for its Catalyst 4000 product line, which delivers a
higher level of quality of service (QoS) and security. Cisco announced significant enhancements to and improved performance
capabilities of its industry-leading router portfolio including the Cisco 7200, 7300, 7400, 7500 and 7600 series of midrange
routers. Cisco also announced new advanced software capabilities for its industry-leading Cisco PIX® firewall family with the
Cisco PIX 506E and 515 platforms. In the enterprise voice market, Cisco added new features and functions to the Cisco IP
Contact Center solution including new agent and supervisor desktops.
New enterprise customers deploying Cisco's next-generation 10-Gigabit Ethernet solutions included Curtin University of
Technology in Australia, Kyoto University in Japan, and Arkansas State University in the United States. Cisco also announced
new enterprise voice solution customers including Research Triangle Institute (RTI) and the Village at Squaw Valley, USA.
New enterprise customers deploying Cisco security solutions included Lockwood Green and Centex Mortgage.
Service Provider Segment
Cisco service provider customers remain focused on decreasing operating expenses and increasing top line revenue through the
convergence of disparate networks, services and operational support systems (OSS). During the quarter, Cisco continued to
work with service providers to identify and market new business network services such as VPNs, metropolitan area access,
and managed IP telephony and security. For example, Case Western Reserve University signed a multi-million dollar agreement
with Sprint, which will use Cisco infrastructure, to build one of the fastest LANs in the world.
New customers that selected Multiprotocol Label Switching (MPLS) solutions based on Cisco software and hardware
technologies include more than 100 leading service providers such as Bell Canada, BT Ignite, France Telecom, Equant, Infonet
Services, KDDI, Japan Telecom, and NTT Communications. MPLS is key to enabling converged networking infrastructures
for the delivery of new IP services. In addition, AT&T announced deployment of Cisco optical solutions for its nationwide
intelligent optical network, further underscoring Cisco's leadership in the metro optical segment. Finally, Cisco experienced
continued interest in its metro optical strategy with new deployments such as Grange Net in Australia, and Government of
Alberta's SuperNet project and CANARIE in Canada, which adopted the Cisco ONS 15454 platform.
During the quarter, Cisco enhanced its leadership in the service provider cable marketplace. The Cisco uBR10012 Cable
Modem Termination System (CMTS) and uBR7246VXR Universal Broadband Router received qualification for
Data-Over-Cable Service Interface Specification (DOCSIS) 1.1, making Cisco the only company currently with multiple Layer
3 DOCSIS 1.1 qualified CMTS systems. The Cisco uBR7246VXR is also the only CMTS currently included in the advanced
interoperability test network, which consists of vendors with the most advanced implementations of PacketCable specifications
and is used for system interoperability testing. Cisco also introduced new Session Initiation Protocol (SIP)-enabled
Cisco continued to meet the unique requirements of small and medium-sized business customers (SMBs) during the quarter
with expanded programs to help educate and build demand for the value of networking technology and by delivering innovative
new networking solutions including wireless access products, switches, and integrated communication systems.
Cisco introduced 14 new access routers designed to extend network intelligence including security, availability, and QoS to the
enterprise branch office and remote worker. Cisco also announced the Cisco Aironet® 1200 Series dual radio wireless LAN
access point supporting both IEEE 802.11b and the 5-GHz IEEE 802.11a radios as they become available.
The Cisco Internet Business Roadmap initiative has been made available to thousands of resellers of Cisco products, helping
them establish networking relevance for e-business applications. In addition, the Cisco Mobile Office initiative added several
new customer venues offering high-speed access to their customers including Airpath Wireless (WLAN at AirTran Airways
boarding gates); Minneapolis/St. Paul Airport (WLAN throughout the Lindbergh Terminal), Gaylord Entertainment (high-speed
access throughout its Gaylord Palms Resort and Convention Center in Kissimmee, St. Cloud, Florida); and Lufthansa Airlines
(enabling high-speed, Ethernet access to passenger seats on airplanes).
"Today's announcement of an 8.6% productivity gain for the United States in the first quarter underscores our strong belief that
our customers will invest in those technologies that deliver productivity results," continued John Chambers. "We've grown our
productivity by 20 percent over the last four quarters, with about half of it coming from our use of Internet business solutions,
and we believe that the Internet will be a prime factor in gains of 5 to 10% a year for companies and 3 to 5% a year for