SOURCE: Cisco

November 07, 2007 16:05 ET

Cisco Reports First Quarter Earnings

SAN JOSE, CA--(Marketwire - November 7, 2007) - Cisco (NASDAQ: CSCO)

--  Q1 Net Sales: $9.6 billion (increase of 17% year over year)
    
--  Q1 Net Income: $2.2 billion GAAP; $2.5 billion non-GAAP
    
--  Q1 Earnings per Share: $0.35 GAAP (increase of 35% year over year);
    $0.40 non-GAAP (increase of 29% year over year)
    

Cisco® (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October 27, 2007. Cisco reported first quarter net sales of $9.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.35 per share, and non-GAAP net income of $2.5 billion or $0.40 per share. A tax benefit of $162 million or approximately $0.03 per share relating to a settlement of certain U.S. income tax matters was included in both the GAAP and non-GAAP results for the first quarter of fiscal 2008.

"Cisco delivered another record quarter based on balanced execution across the company," said John Chambers, chairman and CEO, Cisco. "We believe these strong results show that Cisco is well-positioned in terms of our vision, differentiated strategy and execution, and our ability to act upon key market transitions.

"We believe the migration to the second phase of the Internet and the proliferation of networked Web 2.0 technologies will help drive dramatic gains in productivity and innovation across all industries. If this market transition continues to unfold as we expect, it has the potential to power Cisco's and the industry's growth for many years to come."

                                         GAAP Results
                          ------------------------------------------
                            Q1 2008        Q1 2007      vs. Q1 2007
                          -------------  -------------  ------------
Net Sales                 $ 9.6 billion  $ 8.2 billion         +16.7%
                          -------------  -------------  ------------
Net Income                $ 2.2 billion  $ 1.6 billion         +37.1%
                          -------------  -------------  ------------
Earnings per Share        $        0.35  $        0.26         +34.6%
                          -------------  -------------  ------------


                                       Non-GAAP Results
                          ------------------------------------------
                            Q1 2008        Q1 2007      vs. Q1 2007
                          -------------  -------------  ------------
Net Income                $ 2.5 billion  $ 1.9 billion         +31.4%
                          -------------  -------------  ------------
Earnings per Share        $        0.40  $        0.31         +29.0%
                          -------------  -------------  ------------

A reconciliation between GAAP net income and non-GAAP net income is provided in the table on page 6.

Cisco will discuss first quarter results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Other Financial Highlights

--  Cash flows from operations were $3.1 billion for the first quarter of
    fiscal 2008, compared with $2.3 billion for the first quarter of fiscal
    2007, and compared with $2.7 billion for the fourth quarter of fiscal 2007.
    
--  Cash and cash equivalents, and investments were $24.7 billion at the
    end of the first quarter of fiscal 2008, compared with $22.3 billion at the
    end of the fourth quarter of fiscal 2007.
    
--  During the first quarter of fiscal 2008, Cisco repurchased 96 million
    shares of common stock at an average price of $31.28 per share for an
    aggregate purchase price of $3.0 billion. As of October 27, 2007, Cisco had
    repurchased and retired 2.3 billion shares of Cisco common stock at an
    average price of $19.89 per share for an aggregate purchase price of
    approximately $46.2 billion since the inception of the stock repurchase
    program. The remaining authorized repurchase amount as of October 27, 2007
    was $5.8 billion with no termination date.
    
--  Days sales outstanding in accounts receivable (DSO) at the end of the
    first quarter of fiscal 2008 were 33 days, compared with 38 days at the end
    of the fourth quarter of fiscal 2007.
    
--  Inventory turns on a GAAP basis were 10.3 in the first quarter of
    fiscal 2008, compared with 10.3 in the fourth quarter of fiscal 2007.  Non-
    GAAP inventory turns were 10.0 in the first quarter of fiscal 2008,
    compared with 10.1 in the fourth quarter of fiscal 2007.
    

"We are very pleased with Cisco's financial results, delivering another quarter of record revenue, net income and earnings per share, as well as our highest cash flow from operations to date of $3.1 billion," said Dennis Powell, chief financial officer, Cisco. "This consistency in both top and bottom-line performance can be attributed to our balanced revenue growth across geographies, products, services and customer segments, while maintaining our traditionally strong gross margins."

Business Highlights

Acquisitions

--  Cisco announced a definitive agreement to purchase Navini Networks,
    Inc., a leader in the Mobile WiMAX 802.16e-2005 broadband wireless
    industry. Cisco expects that its broadband wireless solution portfolio,
    including WiMAX products, will play a key role in Cisco's "Digital
    Inclusion" initiative to drive broadband penetration to consumers and
    businesses in emerging markets.
    
--  Cisco announced and closed the acquisitions of Cognio, Inc. and
    Latigent, LLC. Cognio is the market leader in wireless spectrum analysis
    and management for wireless networks. Latigent is a leading provider of Web-
    based business intelligence and analytics reporting solutions, focused on
    contact centers.
    

New Products

--  Cisco introduced the industry's only integrated 802.11n solution
    designed to combine superior wireless performance and reliability with
    simplicity of deployment.
    
--  Cisco introduced enhancements to the Carrier Ethernet portfolio in its
    IP Next-Generation Network (IP NGN) architecture portfolio, extending fiber-
    to-the-home to apartment buildings and other multi-tenant units and
    allowing deployment of more services more quickly.
    
--  Cisco introduced new offerings for its Network Admission Control (NAC)
    including the Cisco NAC Network Module for Integrated Services Routers, a
    modular security solution that is completely integrated into the network
    infrastructure, and the Cisco NAC Profiler, an endpoint-recognition
    technology that maintains a detailed inventory of networked devices so they
    can be evaluated before and during their connection to corporate networks.
    
--  Cisco announced the integration of Cisco VFrame Data Center with
    VMware Virtual Infrastructure, a key solution for the Cisco vision of next-
    generation data centers, called Data Center 3.0. The integration with
    VMware Infrastructure 3 offers customers enhanced IT automation
    capabilities, including added VMware ESX Server capacity on demand, as well
    as orchestrated configuration of network services.
    
--  Cisco introduced the Industry Solutions Partner Network, which is
    designed to engage, enable and reward a global community of channel
    partners, application providers and device manufacturers to collaborate and
    deliver industry-specific solutions that address the business needs of
    customers.
    
--  Cisco announced that WebEx will offer Oracle's Siebel CRM On Demand
    Service, a customer relationship management (CRM) application service,
    through the WebEx Connect application ecosystem.
    
--  Linksys introduced eight new "smart switches" for small environments,
    corporate workgroups or network edge applications that require simple Web
    management, network security and easy installation.
    

Major Customer Announcements

    
--  Cisco Unified Contact Center has been certified by AT&T Labs for
    compatibility and interoperability with AT&T's recently announced IP Toll-
    Free service.
    
--  Bell Canada became the first Canadian service provider to achieve the
    Cisco Powered TelePresence network status, enabling the delivery of the
    Cisco TelePresence solution.
    
--  Hanaro Telecom, Korea's major broadband service provider, selected
    Cisco's standards-based channel-bonding technology for the world's largest
    deployment of 100-megabits-per-second broadband services, now reaching more
    than 200,000 customers.
    
--  Free (Iliad Group), the leading triple-play-over-broadband operator in
    Europe, doubled the capacity of its Cisco-based IP NGN in a drive to
    enhance the quality of experience for its more than 2.5 million
    subscribers. The operation was completed without any interruption to
    subscriber services.
    
--  Belgium-based Accent Jobs For People, an employment and recruiting
    agency, became Cisco's 200th Digital Media System customer. The company is
    using Cisco Digital Signage to communicate in realtime in a dynamic and
    user-friendly way with employees, job candidates and clients across 70 of
    its offices.
    
--  Erste Bank Serbia implemented Cisco's Financial Services Intelligent
    Network Solution and deployed a new unified voice, data and video network,
    including 850 IP phones, that is designed to help accelerate the bank's
    growth by connecting all of its 62 branch offices in Serbia.
    

Key Milestones

--  The Cisco Express Network on Wheels (NoW), a mobile showcase of
    Cisco's IP networking technologies, started a year-long journey in
    Singapore and will travel to 30 cities in Asia. The Cisco Express-NoW is
    designed to extend Cisco's reach to organizations in vertical industries
    such as healthcare, public sector, manufacturing, tourism, retail and
    construction, small and medium-sized businesses, resellers, schools and
    even consumers.
    

Editor's Note:

--  Q1 FY 2008 conference call to discuss Cisco's results along with its
    business outlook to be held at 1:30 p.m. Pacific Time, Wednesday, November
    7, 2007. Conference call number is 888-848-6507 (United States) or 212-519-
    0847 (international).
    
--  Conference call replay will be available from 4:30 p.m. Pacific Time,
    November 7, 2007 to 4:30 p.m. Pacific Time, November 14, 2007 at 866-357-
    4205 (United States) or 203-369-0122 (international). The replay is also
    available from November 7, 2007 through January 18, 2008 on the Cisco
    Investor Relations Website at http://www.cisco.com/go/investors.
    
--  Additional information regarding Cisco's financials, as well as a
    Webcast of the conference call with visuals designed to guide participants
    through the call, will be available at 1:30 p.m. Pacific Time, November 7,
    2007.  Text of the conference call's prepared remarks will be available
    within 24 hours of completion of the call. The Webcast will include both
    the prepared remarks and the question-and-answer session. This information,
    along with GAAP reconciliation information, will be available on the Cisco
    Investor Relations Website at http://www.cisco.com/go/investors.
    
--  A Q&A with Cisco's CEO and CFO about Q1 FY 2008 results will be
    available at http://newsroom.cisco.com.
    

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, visit http://newsroom.cisco.com.

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our vision, strategy and positioning, our ability to act upon key market transitions, the future of networking and the development of our industry and our markets) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry and in various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; increased competition in the networking industry; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks, including risks related to our new manufacturing model; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters; natural catastrophic events; a pandemic or epidemic; achievement of the benefits anticipated from our investments in sales and engineering activities; our ability to recruit and retain key personnel; our ability to manage financial risk; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; potential volatility in operating results; and other factors listed in Cisco's most recent report on Form 10-K. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent report on Form 10-K filed on September 18, 2007, as it may be amended from time to time. Cisco's results of operations for the three months ended October 27, 2007 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

This release includes non-GAAP net income, non-GAAP net income per share data, shares used in non-GAAP net income per share calculation and non-GAAP inventory turns.

These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco's results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP net income, non-GAAP net income per share data and shares used in non-GAAP net income per share calculation, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.

For its internal budgeting process, Cisco's management uses financial statements that do not include employee share-based compensation expense, impact to cost of sales from purchase accounting adjustments to inventory, payroll tax on stock option exercises, compensation expense related to acquisitions and investments, in-process research and development, amortization of purchased intangible assets, significant gains and losses on publicly traded equity securities, the income tax effects of the foregoing, tax effects of post-acquisition integration of purchased intangible assets from significant acquisitions, and significant effects of retroactive tax legislation. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco.

For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today with the Securities and Exchange Commission.

Copyright ©2007 Cisco Systems, Inc. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Linksys and WebEx are registered trademarks or trademarks of Cisco Systems, Inc. and/or its affiliates in the United States and certain other countries. All other trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

            CONSOLIDATED STATEMENTS OF OPERATIONS
            (In millions, except per-share amounts)
                       (Unaudited)

                                                    Three Months Ended
                                                --------------------------

                                                October 27,    October 28,
                                                   2007           2006
                                                -----------    -----------

NET SALES:

Product                                         $    8,015     $    6,940
Service                                              1,539          1,244

                                                ----------     ----------

Total net sales                                      9,554          8,184

                                                ----------     ----------

COST OF SALES:

Product                                              2,823          2,499
Service                                                558            452

                                                ----------     ----------

Total cost of sales                                  3,381          2,951

                                                ----------     ----------

GROSS MARGIN                                         6,173          5,233
OPERATING EXPENSES:

Research and development                             1,192          1,083
Sales and marketing                                  2,003          1,686
General and administrative                             490            364
Amortization of purchased intangible assets            117            105
In-process research and development                      3              4

                                                ----------     ----------

Total operating expenses                             3,805          3,242

                                                ----------     ----------

OPERATING INCOME                                     2,368          1,991

Interest income, net                                   223            157
Other income, net                                       31             28

                                                ----------     ----------

Interest and other income, net                         254            185

                                                ----------     ----------
INCOME BEFORE PROVISION FOR INCOME TAXES             2,622          2,176
Provision for income taxes                             417            568
                                                ----------     ----------

NET INCOME                                      $    2,205     $    1,608
                                                ----------     ----------

Net income per share:
Basic                                           $     0.36     $     0.27
                                                ----------     ----------
Diluted                                         $     0.35     $     0.26
                                                ----------     ----------

Shares used in per-share calculation:
Basic                                                6,087          6,061
                                                ----------     ----------
Diluted                                              6,330          6,199
                                                ----------     ----------


              RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
                  (In millions, except per-share amounts)


                                                     Three Months Ended
                                                  ------------------------

                                                  October 27,  October 28,
                                                      2007         2006
                                                  -----------  -----------

GAAP net income                                   $     2,205  $     1,608


   Employee share-based compensation expense              226          225
   Payroll tax on stock option exercises                   11            6
   Compensation expense related to acquisitions
    and investments                                        39           21
   In-process research and development                      3            4
   Amortization of purchased intangible assets            178          141
                                                  -----------  -----------
   Total adjustments to GAAP income before
    provision for income taxes                            457          397
                                                  -----------  -----------

   Income tax effect                                     (160)        (101)
                                                  -----------  -----------

Non-GAAP net income                               $     2,502  $     1,904
                                                  -----------  -----------
Diluted net income per share:
GAAP                                              $      0.35  $      0.26
                                                  -----------  -----------

Non-GAAP                                          $      0.40  $      0.31
                                                  -----------  -----------
Shares used in diluted net income per share
 calculation:
GAAP                                                    6,330        6,199
                                                  -----------  -----------

Non-GAAP                                                6,317        6,202
                                                  -----------  -----------


Additional reconciliations between GAAP and non-GAAP financial measures are
provided in the tables that follow on page 10.


                        CONSOLIDATED BALANCE SHEETS
                              (In millions)
                                (Unaudited)


                                                   October 27,   July 28,
                                                      2007         2007
                                                  ------------ ------------
ASSETS
Current assets:
   Cash and cash equivalents                      $      4,413 $      3,728
   Investments                                          20,266       18,538
   Accounts receivable, net of allowance for
    doubtful accounts of $179 at October 27, 2007
    and $166 at July 28, 2007                            3,418        3,989
   Inventories                                           1,315        1,322
   Deferred tax assets                                   1,916        1,953
   Prepaid expenses and other current assets             2,127        2,044
                                                  ------------ ------------

   Total current assets                                 33,455       31,574

Property and equipment, net                              3,956        3,893
Goodwill                                                12,158       12,121
Purchased intangible assets, net                         2,379        2,540
Other assets                                             3,754        3,212
                                                  ------------ ------------

TOTAL ASSETS                                      $     55,702 $     53,340
                                                  ------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                               $        820 $        786
   Income taxes payable                                    439        1,740
   Accrued compensation                                  1,920        2,019
   Deferred revenue                                      5,381        5,391
   Other current liabilities                             3,660        3,422
                                                  ------------ ------------

   Total current liabilities                            12,220       13,358

Long-term debt                                           6,582        6,408
Income taxes payable                                       682          ---
Deferred revenue                                         1,726        1,646
Other long-term liabilities                                489          438
                                                  ------------ ------------

Total liabilities                                       21,699       21,850
                                                  ------------ ------------

Minority interest                                          131           10

Shareholders' equity                                    33,872       31,480
                                                  ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY        $     55,702 $     53,340
                                                  ------------ ------------


                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In millions)
                                (Unaudited)



                                                     Three Months Ended
                                                  ------------------------

                                                  October 27,  October 28,
                                                      2007         2006
                                                  -----------  -----------

Cash flows from operating activities:
   Net income                                     $     2,205  $     1,608
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization                          421          348
   Employee share-based compensation expense              226          225
   Share-based compensation expense related to
    acquisitions and investments                           24           10
   Provision for doubtful accounts                         18            6
   Deferred income taxes                                 (491)          60
   Excess tax benefits from share-based
    compensation                                         (252)        (151)
   In-process research and development                      3            4
   Net gains and impairment charges on
    investments                                           (54)         (48)
Change in operating assets and liabilities, net
 of effects of acquisitions:
      Accounts receivable                                 554          206
      Inventories                                           7         (106)
      Prepaid expenses and other current assets            81          (16)
      Lease receivables, net                             (127)         (22)
      Accounts payable                                     32          (11)
      Income taxes payable and receivable                 394           48
      Accrued compensation                                (99)         (29)
      Deferred revenue                                     70          116
      Other liabilities                                    77           23
                                                  -----------  -----------

Net cash provided by operating activities               3,089        2,271
                                                  -----------  -----------
Cash flows from investing activities:
   Purchases of investments                            (4,360)      (4,771)
   Proceeds from sales and maturities of
    investments                                         3,526        4,268
   Acquisition of property and equipment                 (296)        (214)
   Acquisition of businesses, net of cash and
    cash equivalents acquired                             (45)        (121)
   Change in investments in privately held
    companies                                             (20)         (48)
   Other                                                  (65)         (41)
                                                  -----------  -----------

Net cash used in investing activities                  (1,260)        (927)
                                                  -----------  -----------

Cash flows from financing activities:
   Issuance of common stock                             1,539        1,019
   Repurchase of common stock                          (2,993)      (1,500)
   Excess tax benefits from share-based
    compensation                                          252          151
   Other                                                   58            2
                                                  -----------  -----------

Net cash used in financing activities                  (1,144)        (328)
                                                  -----------  -----------

Net increase in cash and cash equivalents                 685        1,016
Cash and cash equivalents, beginning of period          3,728        3,297
                                                  -----------  -----------

Cash and cash equivalents, end of period          $     4,413  $     4,313
                                                  -----------  -----------


                     ADDITIONAL FINANCIAL INFORMATION
                              (In millions)
                               (Unaudited)



                                                  October 27,    July 28,
                                                      2007         2007
                                                  -----------  -----------
CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents                         $     4,413  $     3,728
Fixed income securities                                18,050       17,297
Publicly traded equity securities                       2,216        1,241
                                                  -----------  -----------

Total                                             $    24,679  $    22,266
                                                  -----------  -----------

INVENTORIES
Raw materials                                     $       130  $       173
Work in process                                            45           45
Finished goods:
   Distributor inventory and deferred cost of
    sales                                                 556          544
   Manufactured finished goods                            338          314
                                                  -----------  -----------

Total finished goods                                      894          858
Service-related spares                                    211          211
Demonstration systems                                      35           35
                                                  -----------  -----------

Total                                             $     1,315  $     1,322
                                                  -----------  -----------

PROPERTY AND EQUIPMENT, NET
Land, buildings, and leasehold improvements       $     4,095  $     4,022
Computer equipment and related software                 1,684        1,605
Production, engineering, and other equipment            4,428        4,264
Operating lease assets                                    176          181
Furniture and fixtures                                    407          394
                                                  -----------  -----------

                                                       10,790       10,466
Less accumulated depreciation and amortization         (6,834)      (6,573)
                                                  -----------  -----------

Total                                             $     3,956  $     3,893
                                                  -----------  -----------

LEASE RECEIVABLES, NET (1)
Current                                           $       427  $       389
Noncurrent                                                628          539
                                                  -----------  -----------

Total                                             $     1,055  $       928
                                                  -----------  -----------

OTHER ASSETS
Deferred tax assets                               $     1,612  $     1,060
Investments in privately held companies                   660          643
Income tax receivable                                     ---          277
Lease receivables, net                                    628          539
Other                                                     854          693
                                                  -----------  -----------

Total                                             $     3,754  $     3,212
                                                  -----------  -----------

DEFERRED REVENUE
Service                                           $     4,651  $     4,840
Product
   Unrecognized revenue on product shipments and
    other deferred revenue                              1,930        1,769
   Cash receipts related to unrecognized revenue
    from two-tier distributors                            526          428
                                                  -----------  -----------

Total product deferred revenue                          2,456        2,197
                                                  -----------  -----------

Total                                             $     7,107  $     7,037
                                                  -----------  -----------

Reported as:
Current                                           $     5,381  $     5,391
Noncurrent                                              1,726        1,646
                                                  -----------  -----------

Total                                             $     7,107  $     7,037
                                                  -----------  -----------

Note:
(1)   The current portion of lease receivables, net, is recorded in prepaid
      expenses and other current assets, and the noncurrent portion is
      recorded in other assets in the Consolidated Balance Sheets.


           SUMMARY OF EMPLOYEE SHARE-BASED COMPENSATION EXPENSE
                              (In millions)


                                                     Three Months Ended
                                                  -------------------------

                                                  October 27,  October 28,
                                                      2007         2006
                                                  ------------ ------------

Cost of sales--product                            $          9 $         11
Cost of sales--service                                      23           24
                                                  ------------ ------------
Employee share-based compensation expense in cost
 of sales                                                   32           35
                                                  ------------ ------------

Research and development                                    65           74
Sales and marketing                                         99           94
General and administrative                                  30           22
                                                  ------------ ------------

Employee share-based compensation expense in
 operating expenses                                        194          190
                                                  ------------ ------------

Total employee share-based compensation expense   $        226 $        225
                                                  ------------ ------------

The income tax benefit for employee share-based compensation expense was
$74 million and $58 million for the first quarter of fiscal 2008 and fiscal
2007, respectively.





          RECONCILIATION OF SHARES USED IN THE GAAP AND NON-GAAP
                 DILUTED NET INCOME PER SHARE CALCULATION
                              (In millions)


                                                     Three Months Ended
                                                  ------------------------

                                                  October 27,  October 28,
                                                      2007         2006
                                                  -----------  ------------
Shares used in diluted net income per share
 calculation--GAAP                                      6,330         6,199
Effect of SFAS 123(R)                                     (13)            3
                                                  -----------  ------------

Shares used in diluted net income per share
 calculation--Non-GAAP                                  6,317         6,202
                                                  -----------  ------------






             RECONCILIATION OF GAAP TO NON-GAAP COST OF SALES
                          USED IN INVENTORY TURNS
                              (In millions)


                                                     Three Months Ended
                                                  ------------------------

                                                  October 27,    July 28,
                                                      2007         2007
                                                  -----------  -----------

GAAP cost of sales                                $     3,381  $     3,365
   Employee share-based compensation expense              (32)         (31)

   Amortization of purchased intangible assets            (61)         (48)


                                                  -----------  -----------

Non-GAAP cost of sales                            $     3,288  $     3,286
                                                  -----------  -----------

Contact Information