Analyst Conference Summary

conference date: May 6, 2009 @ 1:30 PM Pacific Time
for quarter ending: April 25, 2009 (3rd quarter fiscal 2009)

Forward-looking statements

Overview: Hit pretty hard by cyclical demand downturn, but still very profitable.

Basic data (GAAP) :

Revenues were $8.2 billion, down 10% sequentially from $9.1 billion and down 17% from $9.8 billion year-earlier.

Net income was $1.3 billion, down 13% sequentially from $1.5 billion, and down 24% from $1.8 billion year-earlier.

EPS (earnings per share) were $0.23, down 12% sequentially from $0.26, and down 21% from $0.29 year-earlier.

Guidance:

Q4, with caveats, 17% to 20% revenue decrease from year-earlier. 63% to 64% gross margin.

Conference Highlights:

Non-GAAP numbers: net income was $1.8 billion, EPS $0.30, down 24% and 21% from year-earlier respectively.

Revenue was within prior guidance. There was a $137 million foreign exchange benefit compared to year-earlier.

Many global customers are saying they are seeing stabilization in their businesses. But forecasting revenues remains difficult. Within Q3, the months were coming closer to normal patterns.

Added three new market adjacencies, including virtual health care and smart communities. Now working on 29 total new market adjacencies.

Aggressively managing expenses.

$2 billion cash generated in quarter. $33.6 billion cash and equivalents balance at end of quarter. $1.2 billion stock repurchased. There was a $4 billion debt offering in the quarter.

Product book to bill approximately 1.

Telepresence business is booming.

$6.42 billion total product revenue. Service revenue was $1.74 billion.

$2.6 billion switching revenue.

$1.4 billion routing revenue.

$2.1 billion advanced technologies revenue.

$370 other product revenues

Revenues by geography: -14% Europe and Japan, -22% emerging markets and Asia, -15% U.S. and Canada.

Cost of sales was $2.93 billion. Operating expenses of $3.62 billion included: $1.24 billion for research and development; $1.96 billion for sales and marketing; $302 million for general and administrative, and $121 million for amortization. Operating income was $1.61 billion. Other income was $80 million. Income tax provision was $339 million.

During the quarter Cisco acquired Pure Digital Technologies; Richards-Zeta Building Intelligence; and Tidal Software.

Has decided against large scale layoffs, preferring to realign towards new market opportunities that will pay off in the long term.

Q&A:

What is driving switching revenue down so much? Enterprise customers move as groups. They are just starting to use up current networks with Web 2.0. Our customers like our switching architecture. We will be fine in switching going forward.

Why are you making so few acquisitions when you have so much cash and valuations are so low? We have been working overtime on acquisitions. We are also looking at new strategic partners.

Gross margins? We are not guiding up or down, we are about where we expect to be. There has been some pricing pressure and discounting. Service margins were the highest we have ever seen, which may not be repeatable.

What was y/y order rate for April? This was the first quarter that followed normalcy, in the February-March-April trend. It feels dramatically better than before. We don't think you will see a dramatic upward turn quickly, however.

India? Most business and government leaders believe the U.S. has to emerge from the recession before the emerging markets do. China has done well with their stimilus package. India is in an election cycle, no changes until that is over, growth was not as good as they predicted.

Product deferred revenue, why did it drop so much? Both products and services deferred revenue was down 6% sequentially. But y/y it was up 2%. Part is due to overall reduction in revenues. The other is that our distribution partners are reducing their inventories, which was the other major impact. The good side is that inventory is low in the channel.

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