Cisco Systems(US:CSCO)2024-11-19 21:36Revenue Performance - Revenue decreased by 6% to $13.841 billion in Q1 FY2025 compared to $14.668 billion in Q1 FY2024[125] - Total revenue for Q1 fiscal 2025 decreased by 6% to $13.841 billion, with product revenue down 9% to $10.114 billion and services revenue up 6% to $3.727 billion[145][148] - Excluding Splunk, total revenue for Q1 fiscal 2025 decreased by 14% compared to Q1 fiscal 2024[146] - Revenue from the Americas decreased by $0.8 billion, while APJC revenue increased by $19 million in Q1 FY2025[128] - Americas segment revenue decreased by 9% to $8.252 billion, with product revenue down 12% to $6.002 billion[147][150] - EMEA segment revenue decreased by 2% to $3.588 billion, with product revenue down 5% to $2.686 billion[147][150] - APJC segment revenue increased by 1% to $2.001 billion, with product revenue down 2% to $1.426 billion[147][150] Product Revenue Breakdown - Networking product revenue decreased by 23% to $6.753 billion, driven by declines in switching, routing, and wireless offerings[155][156] - Security product revenue increased by 100% to $2.017 billion, primarily driven by Splunk and growth in Network Security and SASE offerings[155][157] - Collaboration product revenue decreased by 3% to $1.085 billion, driven by declines in On-Prem Webex Suite and Collaboration Devices[155][158] - Observability product revenue increased by 36% to $258 million, driven by Observability Suite and Network Assurance offerings[155][159] Services Revenue - Services revenue increased by 6% to $3.727 billion in Q1 FY2025, driven by growth in software support, solution support, and advisory services across all geographic segments[161][162] - Americas segment contributed 60.3% of total services revenue, with a 4% YoY increase to $2.249 billion[161] - EMEA segment services revenue grew 10% YoY to $903 million, representing 24.2% of total services revenue[161] - APJC segment services revenue increased 8% YoY to $575 million, accounting for 15.5% of total services revenue[161] Gross Margin - Gross margin percentage increased by 0.7 percentage points to 65.9% in Q1 FY2025[125] - Product gross margin improved by 0.6 percentage points to 65.1%, driven by favorable product mix and productivity benefits[163][166] - Services gross margin increased by 0.7 percentage points to 68.0%, primarily due to higher sales volume[163][166] Operating Income and Expenses - Operating income as a percentage of revenue decreased by 12.2 percentage points to 17.0% in Q1 FY2025[125] - Operating income decreased 45% to $2.358 billion, with operating margin declining 12.2 percentage points to 17.0%[171][172] - Research and development expenses increased by 19% to $2.286 billion in Q1 FY2025[125] - R&D expenses increased 19% to $2.286 billion, representing 16.5% of total revenue, driven by Splunk integration and higher headcount-related costs[168][169] - Restructuring charges of $665 million were incurred in Q1 FY2025, impacting approximately 7% of global workforce[171] Net Income and Taxes - Net income decreased by 25% to $2.711 billion in Q1 FY2025[125] - The effective tax rate for the first quarter of fiscal 2025 was (19.6)%, a decrease from 18.1% in the same period of fiscal 2024, primarily due to a $720 million benefit related to a U.S. Tax Court opinion[177] Cash Flow and Investments - Cash and cash equivalents and investments increased to $18.671 billion in Q1 FY2025 from $17.854 billion in Q4 FY2024[131] - Cash provided by operating activities increased to $3.661 billion in Q1 FY2025 from $2.371 billion in Q1 FY2024[131] - Cash and cash equivalents increased by $1.557 billion to $9.065 billion as of October 26, 2024, compared to $7.508 billion on July 27, 2024[179] - Net cash provided by operating activities for the first quarter of fiscal 2025 was $3.661 billion, resulting in free cash flow of $3.444 billion[179] - Cisco returned $3.595 billion to stockholders in the first quarter of fiscal 2025, including $1.592 billion in dividends and $2.003 billion in stock repurchases[181] - Cisco's total cash and investments increased by $817 million to $18.671 billion as of October 26, 2024, compared to $17.854 billion on July 27, 2024[179] - The remaining authorized amount for stock repurchases under Cisco's program is approximately $3.2 billion, with no termination date[181] Accounts Receivable and Inventory - Accounts receivable decreased by 33% to $4.457 billion as of October 26, 2024, compared to $6.685 billion at the end of fiscal 2024[181] - Inventory decreased by 7% to $3.143 billion as of October 26, 2024, while inventory purchase commitments increased by 3% to $5.321 billion[183][184] - Cisco's inventory and inventory purchase commitments combined decreased by 1% compared to the end of fiscal 2024, reflecting efforts to optimize inventory levels[184] Financing and Debt - Financing receivables decreased by 3% to $6.534 billion as of October 26, 2024, compared to $6.714 billion at the end of fiscal 2024[184] - Channel partner financing volume was $6.0 billion in Q1 FY2025, down from $8.2 billion in Q1 FY2024[186] - Guaranteed channel partner financing balance was $1.1 billion as of October 26, 2024, down from $1.2 billion as of July 27, 2024[186] - Total senior notes outstanding amounted to $20.25 billion as of October 26, 2024[187] - Commercial paper outstanding increased to $11.9 billion as of October 26, 2024, up from $10.9 billion as of July 27, 2024[187] - Interest expense increased by $307 million YoY to $418 million, primarily due to issuances of senior notes and commercial paper[173] Performance Obligations and Deferred Revenue - Total remaining performance obligations decreased by 3% to $39.99 billion as of October 26, 2024[189] - Deferred revenue decreased by 3% to $27.5 billion as of October 26, 2024[189] Tax and Funding Commitments - U.S. transition tax payable amounted to $3.4 billion, with $1.8 billion due in Q2 FY2025 and $1.6 billion in Q2 FY2026[190] - Funding commitments increased to $0.3 billion as of October 26, 2024, up from $0.2 billion as of July 27, 2024[192] Investments and Marketable Securities - Marketable equity investments fair value decreased to $412 million as of October 26, 2024, down from $481 million as of July 27, 2024[197] - The total carrying amount of privately held investments was $1.8 billion as of October 26, 2024[197] - The fair value of marketable equity investments was $412 million as of October 26, 2024[197] Foreign Currency and Interest Rate Sensitivity - Approximately 70% of the company's operating expenses are U.S.-dollar denominated[200] - Foreign currency fluctuations increased combined R&D, sales and marketing, and G&A expenses by $8 million (0.2%) in Q1 fiscal 2025 compared to Q1 fiscal 2024[200] - A hypothetical 50 basis points change in market interest rates would alter the fair value of financing receivables by approximately $0.1 billion[196] - A hypothetical 50 basis points change in market interest rates would change the fair value of fixed-rate debt by approximately $0.7 billion[196] Forward Contracts - The notional amount of purchased forward contracts was $3,829 million as of October 26, 2024[198] - The notional amount of sold forward contracts was $3,706 million as of October 26, 2024[198]