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COMPANY PROFILE

Cisco Systems, Inc.

REFERENCE CODE: D6A1BF0F-FECB-4440-9410-7226F3E5A476 PUBLICATION DATE: 01 Nov 2018 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED

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Cisco Systems, Inc. TABLE OF CONTENTS

Cisco Systems, Inc. © MarketLine

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TABLE OF CONTENTS

Company Overview ........................................................................................................3 Key Facts.........................................................................................................................3 SWOT Analysis ...............................................................................................................4

Cisco Systems, Inc. Company Overview

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Company Overview

COMPANY OVERVIEW

Cisco Systems, Inc. (Cisco or "the company") designs, manufactures, and sells internet protocol (IP)- based networking and other products related to the communications and information technology (IT) industry and provide services associated with these products and their use. The company’s key products include switches, routers, set-top-boxes, cable modem, videoscape software products, headend equipment, security products, controllers, and antennas, among others. It primarily operates in Americas, Europe and Asia Pacific. The company is headquartered in San Jose, California, the US.

The company reported revenues of (US Dollars) US$49,330 million for the fiscal year ended July 2018 (FY2018), an increase of 2.8% over FY2017. In FY2018, the company’s operating margin was 25%, compared to an operating margin of 24.9% in FY2017. In FY2018, the company recorded a net margin of 0.2%, compared to a net margin of 20% in FY2017.

Key Facts

KEY FACTS

Head Office Cisco Systems, Inc. 170 W Tasman Drive San Jose California San Jose California USA

Phone 1 408 5264000 Fax Web Address www.cisco.com Revenue / turnover (USD Mn) 49,330.0 Financial Year End July Employees 74,200 NASDAQ Ticker CSCO

Cisco Systems, Inc. SWOT Analysis

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SWOT Analysis

SWOT ANALYSIS

Cisco Systems, Inc. (Cisco or "the company") designs, manufactures, and sells internet protocol (IP)- based networking and other products related to the communications and information technology (IT) industry and provide services associated with these products and their use. The company's robust inorganic growth strategy established Cisco as a significant player in networking industry. This strategy will further provide Cisco significant competitive scale advantages and allows it to tap into several markets to drive revenue growth. However, competitive pressure may impact operating results, financial condition and market shares of the company in the coming years.

Strength

Robust inorganic growth strategy established cisco as a technology leader Steady revenue growth Business performance of infrastructure platforms

Weakness

Supply Chain Issues Leading to Delays in Order Fulfillments

Opportunity

Poised to benefit from the robust growth in cloud computing market Strategic initiatives

Threat

Volatility in the sales to the service provider market Intense competitive pressure

Strength

Robust inorganic growth strategy established cisco as a technology leader

The company follows an aggressive growth strategy that helped it establish as a technology leader. It focuses on acquiring new and well developed technologies in addition to concentrating on self-developed technologies. Cisco acquired several new companies/technologies over the last few years and is primarily focused on high-growth markets and in technologies that are expected to drive the future of the industry. The company experienced strong growth in the last few years due in large part to its aggressive strategy for building and acquiring technology to keep up with its customers' fast changing requirements. Over the years, the company migrated from producing routers to large area network (LAN) switches and hubs to telecommunications networking equipment. Cisco focused on acquiring smaller companies in the early stages, which allowed it to enter into new markets much earlier than its competition and established it as a leading brand. Cisco's successful acquired strategy are Embrane, a provider of a lifecycle management platform for application-centric network services; MaintenanceNet, which provides a cloud-based software platform that uses data analytics and automation to manage and scale attach and renewals of recurring customer contracts; OpenDNS, a privately held company that provides advanced threat protection for any device, anywhere, anytime; Acano, a provider of collaboration infrastructure and conferencing software; and Lancope, a provider of network behavior analytics, network visibility, and security intelligence to protect enterprises against today's advanced threats. For instance, Heroik Labs, doing business as

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Worklife; ContainerX, an early stage company focused on building technology to help enterprises manage, orchestrate and integrate containers across data centers; CliQr Technologies, a provider of application-defined cloud orchestration platform. This acquisition enhanced the company’s data center portfolio. Cisco also acquired Leaba, a provider of innovative solutions to address significant infrastructure challenges. This acquisition advanced the company’s innovation strategy, supports continued differentiation of Cisco products and delivers on its goal to provide best-in-class solutions for customers. Cisco also acquired Synata, which allows users to search both on-premise and cloud-based applications simultaneously from one platform. Synata’s search capabilities enhanced Cisco Spark’s search capabilities. Cisco also acquired AppDynamics, a provider of application and business monitoring. The combined solutions will deliver visibility across the network, data center, security and applications and drive digital transformation that improves customer experiences. Robust inorganic growth strategy established the company as a significant player in the networking industry. This strategy further provides Cisco significant competitive scale advantages and allows it to tap into several markets to drive revenue growth.

Steady revenue growth

Cisco exhibited a steady revenue growth during the review year. In FY2018, the company generated revenues of US$43,330 million as compared to US$48,005 million in FY2017, with an annual growth of 2.8% over FY2017. This growth in annual revenue was driven by 3% growth in product and service revenue. In FY2018, the company’s reported a 10.2% growth in Application product category, followed by Security grew by 9.3%, Infrastructure Platforms grew by 1.8% and Services grew by 2.6% as compared to previous year.

Business performance of infrastructure platforms

Cisco’s infrastructure platforms category was the major contributor to its revenue stream. Strong performance of the segment enabled the company in achieving overall growth in revenue. Growth in revenue enhances the company’s ability to provide higher returns to its shareholders and also increases its ability to allocate adequate funds for future growth initiatives. In FY2018, the company’s infrastructure platforms category accounted for about 57.3% of the company’s total revenue and reported a year-on- year growth of 1.8%. The growth was due to increase in revenue in data center switching, which was driven by an increase in sales of Cisco Nexus 9000 Series products, and intent-based networking Cisco Catalyst 9000 Series. It was also due to higher sales of server products and hyperconverged data center offering, HyperFlex.

Weakness

Supply Chain Issues Leading to Delays in Order Fulfillments

The company is significantly dependent on its suppliers and contract manufacturers for certain components. Due to its outsourced manufacturing strategy, Cisco has limited control on the delivery schedules and has suffered component shortages due to manufacturing process issues. In the recent years, the company experienced longer than normal lead times on several of its products and continues to face delays in some of its component suppliers. Any persistent shortages in supplies due to capacity

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issues or manufacturing process issues will alter the price of these products. In such a situation, the company may not be able to source required components in adequate quantities. Moreover, as a result of binding price and purchase commitments with suppliers, the company may be obligated to purchase components at prices that are higher than those available in the current market. In the event that Cisco becomes committed to purchase components at prices in excess of the current market price, its gross margins may get affected. Supply chain issues may lead to delay in order fulfillment, affecting the revenues and margins of the company.

Opportunity

Poised to benefit from the robust growth in cloud computing market

Cloud-based operations enable enterprises to scale their operations instantly, handle demand fluctuations, and access systems and services over a variety of devices at a lower cost. According to in- house research, the global cloud computing market is expected to grow at a CAGR of 28.3% to reach US$69,929.6 million by 2022 from US$18,687.2 million in 2017. During the forecast period, Software-as- a-Service (SaaS) is expected to be the major contributor with market share of 53.2%, followed by Infrastructure-as-a-Service (IaaS) with 24.3%, and Platform-as-a-Service with 22.5%. The US is expected to account for 58.3% market share, followed by Europe (19.6%), Asia-Pacific (12.8%), Rest of the World (9.2%), and the Middle East (0.2%) during 2017-2022. The company offers a range of security related SaaS offerings. Its products include ScanSafe, a cloud-based web security service; Cisco IronPort Hybrid Email Security service for email filtering; Cisco IronPort Encryption Appliance; Cisco AnyConnect Secure mobility Solution; and Cisco Security Intelligence Operations. The company's significant presence in SaaS based security market and rapidly growing end market will provide it an opportunity to gain more customers and expand its market share.

Strategic initiatives

The company has taken several initiatives such as partnership and launched new products, which enable its operation and increase its revenue. In October 2018, the company's subsidiary Cisco Meraki partnered with Zain Kuwait to provide secured cloud solutions to Kuwait enterprises. Under this agreement, Zain will provide innovative and smart solutions, powered by Cisco Meraki to customers in Kuwait. This partnership will enhance the enterprise sector of the company in Kuwait. In September 2018, the company partnered with Smartworld, a systems integrator to design the network infrastructure for Expo 2020 Dubai. Under this agreement, Cisco and Smartworld will develop a smart network to support digital service for visitors to Expo 2020.The Expo 2020 Dubai network will connect an estimated 100,000 IoT devices which will be deployed at the site. In October 2018, the company launched ‘START’ product in Coimbatore, India. The product is designed to help SMBs to build their digital foundation and accelerate their digitization. In September 2018, the company planned to invest in India to accelerate innovation and entrepreneurship and use of 5G.

Threat

Volatility in the sales to the service provider market

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The sales to the service provider market have been characterized by large and sporadic purchases, especially relating to the company's router sales and sales of certain products in its newer product categories such as data center, collaboration, and service provider video, in addition to longer sales cycles. Sales to the service provider market could continue to decline and, as has been the case in the past, such sales weakness could persist over extended periods of time given fluctuating market conditions. Sales activity in this industry depends upon the stage of completion of expanding network infrastructures; the availability of funding; and the extent to which service providers are affected by regulatory, economic, and business conditions in the country of operations. Such slowdowns may continue or recur in future periods. Orders from the industry could decline for many reasons other than the competitiveness of Cisco's products and services within their respective markets. Further, service provider customers typically have longer; require a broader range of services, including design services; demand that vendors take on a larger share of risks; often require acceptance provisions, which can lead to a delay in revenue recognition; and expect financing from vendors. All these factors can add further risk to business conducted with service providers. Thus, the weakness in orders from the industry, including as a result of any slowdown in capital expenditures by service providers, could have a material adverse effect on the company's business, operating results, and financial condition.

Intense competitive pressure

The company faces intense competition in the networking and communications equipment markets. These markets are characterized by rapid change, converging technologies, and a migration to networking and communications solutions that offer relative advantages. Cisco competes with several vendors in each product category. The company's major competitors include Alcatel-Lucent; Amazon Web Services; Arista Networks; ARRIS Group; Avaya; Blue Jeans Networks; Brocade Communications; Check Point Software Technologies; Citrix Systems; Dell; LM Ericsson; Extreme Networks; F5 Networks; FireEye; Fortinet; HP; Huawei Technologies; IBM; Juniper Networks; Microsoft; Motorola Solutions; Palo Alto Networks; Polycom; Riverbed Technology; Ruckus Wireless; Symantec; Ubiquiti Networks; and VMware; among others. Cisco also faces price-focused competition from competitors in Asia, especially from China. The company also faces competition from customers to which it licenses or supplies technology and suppliers. Since the inherent nature of networking requires interoperability, the company must cooperate and at the same time compete with many companies. Any inability to effectively manage these complicated relationships with customers, suppliers, and strategic alliance partners may have a material adverse effect on Cisco's business. Intense competition may impact operating results, financial condition and market shares of the company in the coming years.

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