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Cisco Systems (CSCO)
Q3 2011 Earnings Call
May 11, 2011 4:30 pm ET
Gary Moore - Chief Operating Officer, Head of the Services Organization and Executive Vice President
Frank Calderoni - Chief Financial Officer and Executive Vice President
Laura Graves - Investor Relations
John Chambers - Executive Chairman, Chief Executive Officer and Member of Acquisition Committee
Nikos Theodosopoulos - UBS Investment Bank
Mark Sue - RBC Capital Markets, LLC
Tal Liani - BofA Merrill Lynch
Brian White - Ticonderoga Securities LLC
Brian Modoff - Deutsche Bank AG
Jeffrey Kvaal - Barclays Capital
Ehud Gelblum - Morgan Stanley
Paul Silverstein - Crédit Suisse AG
Ittai Kidron - Oppenheimer & Co. Inc.
Simona Jankowski - Goldman Sachs Group Inc.
Previous Statements by CSCO
» Cisco Systems' CEO Discusses F2Q11 Results - Earnings Call Transcript
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» Cisco Systems F2Q10 (Qtr End 1/23/10) Earnings Call Transcript
Thank you very much, operator, and good afternoon, everyone. Welcome to our 85th quarterly conference call. I am joined today by John Chambers, our Chairman and CEO; Frank Calderoni, Executive Vice President and Chief Financial Officer; and Gary Moore, Executive Vice President and Chief Operating Officer.
Our Q3 fiscal year 2011 press release is on the U.S. High Tech Market Wire and on the Cisco website at newsroom.cisco.com. I would like to remind you that we have a corresponding webcast with slides. In those slides, you will find financial information that we cover during this conference call as well as additional financial metrics and analysis that you might find helpful.
Additionally, downloadable Q3 financial statements will be made available following the call, which will include revenue by geographies and as well as product categories. Income statements, full GAAP to non-GAAP reconciliation information, balance sheet and cash flow statements can be found on our website in the Investor Relations section. Click on the Financial Reporting section of the website to access these documents.
A replay of this call will be available via telephone from May 11 through May 18 at (866) 357-4205 or (203) 369-0122 for international callers. A webcast replay is available from May 11 through July 22 on Cisco's Investor Relations website at investor.cisco.com.
Throughout this conference call, we will be referencing both GAAP and non-GAAP financial results. The financial results in this press release are unaudited. The matters we will be discussing today include forward-looking statements and, as such, are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K and 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.
Unauthorized recording of this conference call is not permitted. With that out of the way, now I'd like to turn the call over to John for his commentary on the quarter.
Laura, thank you very much. I would like to start off our call today by crystallizing for you where Cisco stands at this point in time. The network is driving the future of the core Internet, and it's clearly become one of the most valuable assets in IT. Cisco is extremely well positioned to lead this change.
In short, Cisco is a very strong company in a healthy market with a few problematic areas. And that, we are taking comprehensive action to address. The first of these is simplifying actions that we're going to do and focus on our organization and operating model. As we announced last week, we are streamlining our organization and overhauling our business model dramatically. We are making it easy for our customers and partners to do business with us and speeding up internal decision-making.
Second, aligning our call structure given transitions in the marketplace. We will take out $1 billion in costs from our FY '12 expense run rate. We also expect changes in how we do business will assure a lower cost base going forward.
Third, divesting or exiting underperforming operations. As we have already started to do this, we are examining our operations through the filter of the 5 company priorities as well as our own comprehensive metrics.
Fourth, delivering value to shareholders. We are working on both the financial and operational fronts to realize value that rewards our shareholders for their investment and their support. We have initiated a quarterly cash dividend. We are continuing our stock repurchase program, and we are focused on making changes that improve our operations in order to realize consistent profitable growth and assure the most appropriate use of our domestic available cash.
We are moving quickly, and we'll continue to implement our action plan to fix what is broken and solidify our foundation for the future. Gary will continue to lead that effort. We will be in a position to outline the next phase of our transformation when we report Q4 earnings. As a result, while Q3 met expectations, Q4 will continue to show weakness while we do the hard work behind the scenes to be able to execute these changes, and we will provide for Q4 guidance that reflects that light. We know what we have to do. We have a clear game plan. We are a company with a track record of constant market-shaping innovations.
We've had to make big changes before, and each time we have made these changes, we've emerged even stronger. We are embarking on a course that will address our challenges while building on our foundational strengths.
Now for more on the format of today's call. First, we will share perspectives on our current environment, how we are moving forward aggressively with an action plan to address challenges we are seeing while staying focused on our long-term vision and strategy in areas that we are working well across Cisco.
Second, we will share with you the areas of our business that are under pressure, including what we view to be market-driven versus what we think are within our own control.
Third, a discussion of what is going well across Cisco; and fourth, the specific plan and actions we have taken and will take going forward to strengthen Cisco. Gary Moore will cover much of this during your portion of the section. We will then cover Q3 business and financial highlights followed by our guidance for Q4. I will cover the business highlights, and Frank will cover the financial highlights in Q4 guidance. And finally, we'll outline our expectations going forward and move into Q&A.
Starting with the current environment. As we make these changes, we will stay very focused on 5 company priorities: leadership in our core, i.e. routing, switching and services, which includes comprehensive security and mobility solutions; second, collaboration; third, data center virtualization and cloud; fourth, video; and fifth, architectures for business transformation.
These 5 company priorities are the key drivers of the future of the network and core Internet. Our customers know Cisco is uniquely able to deliver in these areas to support their business success. These strategic priorities are the constants that will guide us. They offer the most significant and certain opportunities to increase value for our shareholders. At this time, we have acknowledged our challenges and the need for speed. With progress already under way, we are intensifying our focus and accelerating our pace to the level I know we are capable of and we have clearly demonstrated in the past. This is exactly what we are addressing now.
Moving on to areas of concern. As we have discussed before, we've had several areas of our business come under pressure: consumer, traditional set-top boxes, switching, and our public sector customer segment. We have taken action in our Consumer business and are executing well with our next generation of video delivery and IP set-top boxes. So I will focus on the 2 remaining primary areas that impact our business today: switching and the public sector.
First, switching. The switching market is in the midst of a significant transition. Across the industry, prices at each speed had been driving down price per port along with significant transitions from 1G to 10G, where we are at the forefront of this innovation. This is good for our customers as it will enable faster and more efficient infrastructure long term and will enable even faster adaptation of cloud-based solutions.