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CSCO: Income Statement Analysis For The January 2011 Quarter

 February 10, 2011 12:44 PM

Cisco Systems (NASDAQ: CSCO) earned $0.27 per diluted share on a GAAP basis in the January-ending second quarter of fiscal 2011, down 14 percent from $0.32 in the same three months of the previous year. 

Non-GAAP earnings fell 7.5 percent, from $0.40 to $0.37 per share.  The non-GAAP results exclude items such as share-based compensation, amortization of acquisition-related intangible assets, and other acquisition-related expenses.  In the latest quarter, these non-GAAP items totaled $861 million pretax, $557 million ($0.10 per share) after-tax.

This post examines Cisco's Income Statement for the quarter and compares the entries on each line to our "look-ahead" estimates.  Reported GAAP earnings were $0.05 less than the $0.32 per share we had forecast. 

The principal sources for the income statement analysis were the earnings announcement and the ensuing conference call presentation [pdf].

In a second article, we will report Cisco Systems' scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Before getting into the details, we will take a step back to introduce the subject of today's analysis.

Cisco Systems, Inc., the proud plumber of the Internet, has a dominant role in markets for enterprise networking products and services. 

Cisco's earnings rose 27 percent in fiscal 2010, which ended in July, from $6.13 billion to $7.77 billion.  Revenue increased 11 percent, from $36.1 billion to $40.0 billion.  Fiscal 2010 included a 53rd week.

The market value of the company is currently around $125 billion, on a fully diluted basis. 

In fiscal 2011, Cisco will issue its first cash dividend.  The amount and timing of the dividend are subject to tax considerations.

Cisco categorizes its products as Routers, Switches, Advanced technologies, and other.  Switches generated the most Revenue in fiscal 2010, $13.6 billion, which was 42 percent of net product sales. 

Revenue from product sales was supplemented by $7.6 billion in Revenue from services in fiscal 2010.  Service revenue was 19 percent of total Revenue in fiscal 2010.

The company's
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