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Cisco Systems Inc.
Part One: Introduction and  External Analysis
Cisco Systems - IntroductionFounded in 1984
Incorporated on December 10, 1984
Have 72,935 employees
Surpassed 39 billion in revenue in 2008
Corporate headquarters located in San Jose, California
32 factories worldwide, 30 of them are outsourced.
Spends nearly $5.3 billion a year in R&DCisco Systems – Intro – Recent EventsVideo Easier to Create, Consume, Search and Share Across the Enterprise
Cisco Demonstrates Leadership in Virtualized, Scalable, Cloud- Ready Data Centers with Customer and Technology Milestones
Cisco Connects Businesses to Consumers via VideoNetworking and CommunicationIndustry: Networking and Communication supplies and services
Industry Consolidation – Few competitors in their main product area
In 2006 they had 70% of the share of its core router and switch market.Juniper Networks and Hewlitt-Packard selected as benchmarks.Cisco's Chambers ProblemCisco Competition
Cisco’s Mission StatementShape the future of the Internet by creating unprecedentedvalue and opportunity for our customers, employees, investors,and ecosystem partners.VisionChanging the Way We Work, Live, Play, and Learn.Cisco has a very bland and basic mission statement that only ranks as an “ok” (5) on the MVV evaluation.
External AnalysisRemote (Societal) Environment.
Industry (Task) Environment
Assessment of Competition
Most Crucial Threats and Opportunities, with score.Remote (societal) EnvironMentOpportunities Innovation
Product and services  expansion
Market of Airline Industry
Reusing existing Cisco  gear to act as mobile POPs
Cloud ComputingThreatsEconomic slowdown
Price wars
Product substitution
Margin erosion
Consolidation trend
Consumer loyaltyIndustry/Task EnvironmentOpportunitiesLow supplier power, Cisco has taken control of its supply chain
Router and switch market share discourages new entrants
Switching costs are high(reduce buyer power)
Acquisitions removes some threat of startup success
Growth in the consumer market and cloud computingThreatsFlip Video – bargaining power of buyers.
MSFT – Threat of new entrant (bundle unified communications software)
GOOG – Threat of new entrant (desktop video conferencing market)
Vyatta – Substitute (open source hardware)
Asterisk – Substitute (open source VoIP)Assessment of CompetitionOpportunitiesIncrease competition in bottom layer switch market
Smart Grid Technology
Asian Market – Tata Communications
Server growth – up 700%
Cloud-centric softwareThreatsMirrorless SLRs are the response to Flip video
Juniper announced data center
Juniper entered into a partnership with IBM to handle network connectivity for the latter’s cloud computing
3COM emerging into markets like China
Juniper’s high-end switches (EX) and Junos OS
HP’s low cost switchesSummary – Most Crucial Opportunities and ThreatsOpportunitiesIncrease competition in bottom layer switch market (9)
Server growth (10)
Cloud Computing (10)
Smart Grid Technology (10)
Asian Market (8)ThreatsHP’s low cost switches (10)
MSFT – Threat of new entrant  (bundle unified communications software) (7)
Consolidation trend (7)
Juniper/IBM (9)
Juniper’s data center (10)Avg.  ~  47/5 = 9.4Avg.  ~  43/5 = 8.6O-T ~ 9.4 – 8.6 = .8
Part Two: Internal Analysis
Net Income Trends -CSCO & Benchmarks
CSCO Quarterly Earnings vs. Consensus Estimates
Revenue by product category and service
Key Income Statement Data FY2010
Key Balance Sheet Data FY2010
Cash flow Data fy2010
Important Financial Ratios FY2010
Applying Altman’sBankruptcy FormulaZ = 1.2*A + 1.4*B + 3.3*C + 0.6*D + 1.0*E, where;A = Working Capital / Total Assets (%)B = Retained Earnings / Total Assets (%)C = EBIT / Total Assets (%)D = Market Value of Equity / Total Liabilities (%), andE = Sales / Total Assets“Scores below 1.81 indicate significant credit problems while scores above 3.0 indicate a healthy firm. Scores falling between 1.81 and 3.0 indicate question marks.”
Z-Value
Index of Sustainable Growthg* = [P(1-D)(1+L)] / [T-P(1-D)(1+L)], whereP = (Net Profit before Tax / Net Sales) x 100D = Target dividends / Profit after TaxL = Total Liabilities / Net WorthT = (Total Assets / Net Sales) x 100
Inventory Turnover FY2010
Credit RatingsMarch 9, 2011-Standard & Poor's Ratings Services said today that it assigned its 'A+' issue rating to San Jose, Calif.-based Cisco Systems Inc.'s (Cisco) three tranches of senior unsecured notes.
Cisco Stock Price History
CSCO Stock Price – 5 year trend
CSCO Stock Price – 2 year Trend
Financial success StatementIn fiscal 2010, we saw a solid return to balanced growth across geographies, product and customer markets exemplified by Cisco reaching over $40 billion in fiscal year revenue. We focused our efforts on defining true innovation and operational excellence within our company. And we improved our position as a strategic partner to customers worldwide by showing how the network has become, in our view, the most strategic asset in communications and information technology (IT) today.
ANALYSIS OF MARKETING POSITION
Cisco long term Total sales From 2006-20102006 = 23.38 Billion
2007 = 34.90 Billion
2008 = 39.60 Billion
2009 = 36.10 Billion
2010 = 40 BillionCisco long term Quarterly sales from 2006-20102006				          2008	Quarter 1: 6.50 Billion			Quarter 1: 9.60 Billion	Quarter 2: 6.60 Billion 			Quarter 2: 9.60 Billion	Quarter 3: 7.30 Billion			Quarter 3: 9.60 Billion	Quarter 4: 7.98 Billion			Quarter 4: 10.40 Billion2007				          2009	Quarter 1: 8.20	Billion			Quarter 1: 10.30 Billion		Quarter 2: 8.40	Billion			Quarter 2: 9.1 Billion	Quarter 3: 8.90	Billion			Quarter 3: 8.2 Billion	Quarter 4: 9.40 Billion			Quarter 4: 8.5 Billion
Cisco Long Term Quarterly Sales from 2006-2010 cont. 2010	Quarter 1: 9.00 Billion	Quarter 2: 9.80 Billion	Quarter 3: 10.40 Billion	Quarter 4: 10.80 Billion
Sales by strategic business units in quarter 1 and 2 of 2011Strategic Business Units = divisions or groups of divisions composed of independent product-market segments that are given primary responsibility and authority for the management of their own functional areas. CISCOQ1 IN MILLIONS				Q2 IN MILLIONSROUTERS	- $1,835				ROUTERS - $1,672SWITCHES - $3,532				SWITCHES - $3,151NEW PRODUCTS - $3,104			NEW PRODUCTS - $3,202OTHER PRODUCTS - $229			OTHER PRODUCTS - $211TOTAL PRODUCT – $8,700			TOTAL PRODUCT - $8,236
Market Share of stocks
Marketing TacticsTactics = specific operating plans that detail how a strategy is to be implemented in terms of when and where it is to be put into action.
Timing Tactics 	Historically a first mover supported by being a first mover in technology.  They specialize in routers, switches, wireless, security, optical networking, etc.  Cisco is also considered a industry leader.Market Location Tactics: Offensive	Cisco has always been known to take a frontal assault because they are a market leader.  They go head to head with its competition.
Marketing TacticsMarket Location Tactics: Defensive	Cisco takes the path of raising structural barriers.  They do this to block challenger’s logical avenues of attack.	Some factors of Porters they use are:	Offering a full line of products in every profitable market segment to close off any entry points.	Keep their items reasonably priced for their most popular products and services.
Cisco Success statementCisco has had many success stories throughout the years which is a large part in being a industry leader.
Customers drive our business strategies to achieving success and excellence in everything we do, and will continue to be our key focus for developing products and services that accelerate their capability to prosper in the Internet business.Cisco success statement cont. An example of a success story is:	In 2001 the cost of direct DSL and ISDN access increased markedly. Cisco transitioned tens of thousands of teleworkers and remote office workers worldwide to remote access VPNs. To determine if additional capacity was needed, Cisco used Cisco NetFlow in conjunction with various open-source tools to characterize existing traffic and then extrapolate expected traffic. With this business intelligence, Cisco successfully transitioned 22,000 users to VPN in only three months.

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Editor's Notes

  1. Cisco designs, manufactures and sells Internet Protocol (IP)-based networking and other products related to the communications and information technology industry and provides services associated with these products and there use. Their product portfolio consists of a broad line of products for transporting data, voice, and video within buildings, across campuses, and around the world.
  2. Cisco was founded in 1984 by a group of computer scientists from Stanford University.Cisco was incorporated on December 10, 1984 in California.At the end of Q2 FY2011 (ending January 29, 2011) Cisco has 72,935 employees Surpassed 39 billion in revenue in 2008Corporate headquarters located in San Jose, California32 factories worldwide, 30 of them are outsourced.Spends nearly $5.3 billion a year in R&D, making us one of the top R&D spenders in the world.
  3. Video Easier to Create, Consume, Search and Share Across the EnterpriseCisco Demonstrates Leadership in Virtualized, Scalable, Cloud- Ready Data Centers with Customer and Technology MilestonesShipped its one millionth Nexus 10Gb Ethernet portReached nearly 4,000 customers, 1,000 being repeat buyersCisco's Unified Computing System revenue grew more than 700%Cisco Connects Businesses to Consumers via VideoAugment in-person meetings and interactions with lifelike video experiencesHD recording and sharing on FaceBook, Flipshare and You Tube
  4. More Speaking Here
  5. Fiscal 2010 was a defining year for Cisco following the unprecedented global economic challenges of the year before. This was our opportunity to show the world what a truly great company we are, and to position ourselves to extend our leadership in the years ahead.   — John Chambers, Chairman & CEO
  6. In fiscal 2010, Cisco reported record net sales of over $40 billion, an increase of 11% compared to a year ago. Annual product sales were $32.4 billion, up 11% year-over-year. Service revenue represented 19% of annual sales or $7.6 billion, up 9% from a year ago. Sales across all of our geographic theaters increased when compared to fiscal 2009. We attribute this increase to an improvement in overall demand derived from a gradually recovering global economy as well as, in our view, increased demand for the architectural approach to products and services that only Cisco can offer.
  7. Cisco has a robust balance sheet. The company features significant cash and cash equivalents and investments of 39.861 billion. Its investments, which are primarily short term in nature, stood at 35.280 billion, compared to last years 29.283 billion.
  8. Because of the amount of cash that Cisco holds on to it has inflated our “T” value which causes our index to decrease.
  9. Beg: Amanda Sales long term trend (5 years).http://investor.cisco.com/results.cfm
  10. AmandaSales by long term (5 years) broken down into quarters… shows growth and decline throughout the years.
  11. Amanda Sales by quarters continued
  12. AmandaSales by SBU. What SBU is. Q1 and 2 of 2011http://investor.cisco.com/results.cfmStrategic Management pg. 148
  13. Amanda Market Share of stoves vs. industry and competitors (averages over the past 5 years).http://investor.cisco.com/results.cfmTalked to a cisco representative and they do not compute their market share, but other companies do it for them occasionally. This is market share of stocks
  14. AmandaMarketing tactics, timing tactics and market location tacticsStrategic Management pg. 192-195
  15. AmandaMarketing location tactics cont.
  16. AmandaI asked Maddocks about the success statements…Got from Cisco website, searched success statement
  17. AmandaSuccess statement cont.
  18. Handout form teacher
  19. AmandaThe structure of the top management / executive team at Cisco (corporate management not board of directiors).http://investor.cisco.com/management.cfm
  20. AmandaTop management cont.http://investor.cisco.com/management.cfm
  21. AmandaCompensation. Cisco representative said they don’t give out exact amounts, but this is how they decided to compensate top management for the 2010-2011 years. www.materials.proxyvote.com/cisco/2010/proxystatement
  22. Chambers - Salary of $382,212, the San Jose company said in a regulatory filing last week. He was awarded stock options valued at $5.69 million and got $4.6 million under the nonequity incentive plan
  23. Amanda Direction of top management team, asked maddocks where to get info from.
  24. -$132 million which translates to -9% where Alcatel-Lucent has gained 8%
  25. Switches join multiple computers together to create a LAN or WAN.
  26. Extend the working life of capital assetsAvoid or defer construction of new facilities
  27. Contributing $10 million of product, services and supportCare-at-a-distance technology that combines video, audio and medical informationThe cameras and electronic scopes will enable patients to see and listen to the medical exam in the same manner as the clinician, according to CiscoEnables members of a patient’s care team–primary care provider, specialist physicians, care manager, family members and others–to meet, regardless of location or distance, said the company.
  28. Handout from teacher
  29. http://www.cisco.com/web/about/ac227/ac333/cisco-and-citizenship/key-performance-indicators.html
  30. The company’s robust balance sheet enhances its investors’ confidence as well as allows it to investin the future growth avenues.
  31. Electricity outages cost U.S. industry about $50 billion per year.Reduce U.S. greenhouse gas emissions equivalent to 60 to 211 million metric tons of CO2 annually in 2030.Generate approximately 280,000 direct jobs across various categories.Obama administration has also increased the maximum award available through ARRA's Smart Grid Investment Grant Programfrom $20 million to $200 million, and the Smart Grid Demonstration Projects from $40 million to $100 million. A power network utilizing present computing technologies will eliminate blackouts and brownouts due to under-capacity, and will enable better overall reliability through advanced monitoring and management.
  32. http://www.youtube.com/watch?v=qpWPVIhJE-g&feature=relatedhttp://www.youtube.com/watch?v=fU0IcOOduMQ&feature=related
  33. Regulatory - Operations. Efficiency measures that impact new or existing buildings, changes that impact assets that are direct emitters (e.g., vehicle fleet, diesel generators), and changes that would impact the price of energy (fuels and electricity).Cisco sees a limited risk from increasing operational costs caused by stricter building codes or increasing electricity, fuel and transportation costs. Cisco is not a heavy emitter of greenhouse gases and is therefore less sensitive to changes in regulations than carbon-intensive industries.Physical – Impact could be actual labor availability or political instability caused by or attributed to climate changeGeneral - Market and brand risks are probably the biggest and most clearly defined risks specifically because Cisco has positively differentiated itself with respect to climate change and operational, product and solutions activities to reduce GHG emissions.To address risks associated with regulations on fuel/energy taxes, Cisco has developed an Energy Management department to continually track and monitor Cisco’s global energy consumption and associated GHG emissions. This department also is charged with identifying, evaluating and implementing projects to improve the efficiency of Cisco’s operations and minimize Cisco’s carbon footprint.
  34. Data – All information about Cisco is confidential and is not for their use.Ethics – We follow the law, No bribes, avoid conflict of interest, avoid unfair business practices, anti-corruption, avoid political and charitable contributions on Cisco’s behalf and unauthorized lobbying.Health and Safety – Regulatory compliance, Hazard ID and risk mitigation, documentation and inspection, suppliers must implement control measures to ensure environmental protection.