SOURCE: Cisco

May 06, 2008 16:05 ET

Cisco Reports Third Quarter Earnings

SAN JOSE, CA--(Marketwire - May 6, 2008) - Cisco (NASDAQ: CSCO)

--  Q3 Net Sales: $9.8 billion (increase of 10% year over year)
    
--  Q3 Net Income: $1.8 billion GAAP*; $2.3 billion non-GAAP
    
--  Q3 Earnings per Share: $0.29 GAAP* (decrease of 3% year over year);
    $0.38 non-GAAP (increase of 12% year over year)
    

Cisco® (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its third quarter results for the period ended April 26, 2008. Cisco reported third quarter net sales of $9.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.29 per share, and non-GAAP net income of $2.3 billion or $0.38 per share.

"In the quarter, Cisco delivered solid financial results driven by our focus on innovation, our broad and growing global footprint, and our teams' focus on delivering results," said John Chambers, chairman and CEO, Cisco. "We believe that our steady performance is based on Cisco's unique balance across business and technology architectures and our continued focus on execution against our long-term strategy."

Chambers continued, "Our optimism lies in our vision that the network is a strategic asset to optimize productivity and to enable collaboration in the second phase of the Internet, both of which are priorities for our success. The network is also a focal point for innovation, helping Cisco enter new and adjacent markets as well as strengthen or expand our positions in large, established markets."

                                               GAAP Results
                               -------------------------------------------
                                  Q3 2008        Q3 2007      vs. Q3 2007
                               -------------- -------------- -------------
Net Sales                      $  9.8 billion  $ 8.9 billion        + 10.4%
                               -------------- -------------- -------------
Net Income                     $  1.8 billion* $ 1.9 billion        -  5.4%
                               -------------- -------------- -------------
Earnings per Share             $         0.29* $        0.30        -  3.3%
                               -------------- -------------- -------------


                                            Non-GAAP Results
                               -------------------------------------------
                                  Q3 2008        Q3 2007      vs. Q3 2007
                               -------------- -------------- -------------
Net Income                     $  2.3 billion $  2.1 billion        +  9.4%
                               -------------- -------------- -------------
Earnings per Share             $         0.38 $         0.34        + 11.8%
                               -------------- -------------- -------------

* GAAP net income and GAAP earnings per share for the third quarter of fiscal 2008 included an acquisition-related charge of $246 million or $0.04 per share.

Net sales for the first nine months of fiscal 2008 were $29.2 billion, compared with $25.5 billion for the first nine months of fiscal 2007. Net income for the first nine months of fiscal 2008, on a GAAP basis, was $6.0 billion or $0.97 per share, compared with $5.4 billion or $0.86 per share for the first nine months of fiscal 2007. Non-GAAP net income for the first nine months of fiscal 2008 was $7.2 billion or $1.16 per share, compared with $6.1 billion or $0.98 per share for the first nine months of fiscal 2007.

A reconciliation between GAAP net income and non-GAAP net income is provided in the table on page 7.

Cisco will discuss third 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 $3.0 billion for the third quarter of
    fiscal 2008, compared with $2.4 billion for the third quarter of fiscal
    2007, and compared with $2.4 billion for the second quarter of fiscal 2008.
    
--  Cash and cash equivalents and investments were $24.4 billion at the
    end of the third quarter of fiscal 2008, compared with $22.3 billion at the
    end of the fourth quarter of fiscal 2007, and compared with $22.7 billion
    at the end of the second quarter of fiscal 2008.
    
--  During the third quarter of fiscal 2008, Cisco repurchased 83 million
    shares of common stock at an average price of $24.04 per share for an
    aggregate purchase price of $2.0 billion. As of April 26, 2008, Cisco had
    repurchased and retired 2.5 billion shares of Cisco common stock at an
    average price of $20.51 per share for an aggregate purchase price of
    approximately $52.2 billion since the inception of the stock repurchase
    program. The remaining authorized repurchase amount as of April 26, 2008
    was $9.8 billion with no termination date.
    
--  Days sales outstanding in accounts receivable (DSO) at the end of the
    third quarter of fiscal 2008 was 39 days, compared with 38 days at the end
    of the fourth quarter of fiscal 2007, and compared with 39 days at the end
    of the second quarter of fiscal 2008.
    
--  Inventory turns on a GAAP basis were 11.0 in the third quarter of
    fiscal 2008, compared with 10.3 in the fourth quarter of fiscal 2007, and
    compared with 10.8 in the second quarter of fiscal 2008. Non-GAAP inventory
    turns were 10.7 in the third quarter of fiscal 2008, compared with 10.1 in
    the fourth quarter of fiscal 2007, and compared with 10.5 in the second
    quarter of fiscal 2008.
    

"We are very pleased with our performance for the third quarter in which we delivered 10 percent year-over-year top-line growth," said Frank Calderoni, chief financial officer, Cisco. "Our ability to deliver solid financial results, excellent cash flow, and a strong balance sheet during a quarter of somewhat uncertain macro-economic conditions, illustrates the power of our business model."

Business Highlights

Acquisitions and Investments

--  Cisco announced its intent to purchase the remaining 20 percent
    interest in San Jose-based Nuova Systems, a startup focused on the
    development of next-generation products for the data center market. Cisco
    also introduced the Cisco Nexus™ 5000 Series, the first product
    developed by Nuova.
    
--  Cisco announced the next phase of its corporate strategy for China,
    marked by new public-private collaborative programs within the country that
    deliver upon Cisco's $16 billion multi-year innovation and sustainability
    initiative first announced in November 2007, while expanding its
    organizational and leadership focus for the country.
    

New Products

--  Cisco introduced the Cisco ASR 1000 Series Aggregation Services
    Routers, which help service provider and enterprise edge networks
    simultaneously host an ever-increasing array of resource-intensive
    integrated data, voice and video business and consumer services.
    
--  Cisco evolved its Self-Defending Network portfolio from network
    security offerings into a broader systems approach designed to strengthen
    the overall protection of networks as well as the increasingly diverse
    number of endpoints, applications and content utilized on networks.
    
--  Cisco announced additions to its physical security product portfolio,
    delivering new capabilities in Internet Protocol (IP)-based video
    surveillance and electronic access control designed to help customers
    integrate existing physical security systems and IT infrastructures.
    
--  Cisco announced new solutions for its Empowered Branch portfolio,
    including the opening of its industry-leading Cisco Integrated Services
    Router and Cisco Wide Area Application Services (WAAS) platforms to
    customers and third-party application developers. The intent of these new
    solutions is to allow companies to customize and optimize branch networks
    to meet their unique business needs.
    
--  Cisco announced that it enhanced its Mobility Healthcare portfolio
    with a set of integrated solutions designed to rapidly improve staff
    productivity and patient care efficacy for healthcare organizations around
    the globe. These integrated solutions combine Cisco's Unified Wireless
    Network with new Cisco Compatible Extensions and technology partner
    offerings in the areas of Mobile Care and Location-Aware services, as well
    as with Cisco's Secure Wireless foundation, to address the concerns of
    healthcare professionals.
    
--  Cisco announced the development of the Cisco Academy of Digital
    Signage, a new qualification program for media professionals looking to
    create trusted, optimized content for digital signage.
    
--  Cisco announced Apple Mac support across its WebEx® suite of
    business process collaboration applications, specifically WebEx Meeting
    Center, WebEx WebOffice, WebEx Event Center, WebEx Training Center, WebEx
    Sales Center and WebEx Support Center, which now offer cross-platform
    support for Mac OS X Leopard and Safari 3.
    
--  Linksys® introduced the Linksys by Cisco Wireless-G IP iPhone
    (WIP310), the latest product in the Linksys IP phone family offering voice
    over IP (VoIP) connectivity via Wi-Fi Internet access.
    

Major Customer Announcements

--  Videotron became the first cable operator in North America to roll out
    services based on Cisco Wideband, which uses channel bonding as defined by
    the CableLabs® DOCSIS® 3.0 specification.
    
--  AT&T announced plans to become the first service provider to deliver a
    global, fully managed Cisco TelePresence solution, called AT&T Telepresence
    Solution, that allows companies to connect to their customers, suppliers
    and partners worldwide.
    
--  Tata Communications, a leading Asia-based service provider, launched
    its global TelePresence network service, as the first Asian service
    provider to achieve Cisco Certified TelePresence Connection status enabling
    delivery of the Cisco TelePresence solution.
    
--  Xanadoo Company, a U.S. wireless broadband service provider, is using
    Cisco's IP Next-Generation Network (IP NGN) infrastructure to launch one of
    the first commercial North American mobile WiMAX (Worldwide
    Interoperability for Microwave Access) broadband wireless networks.
    
--  The Colin Powell Youth Leadership Center has deployed Cisco Unified
    Communications to help staff become increasingly mobile so that they can
    collaborate from any workspace, and to help students gain exposure to
    technology to help them gain a competitive advantage as they graduate and
    move into the workforce.
    
--  Esurance, a direct-to-consumer personal auto insurance company, has
    deployed security technology as part of a comprehensive Cisco network that
    is helping secure and support a number of corporate initiatives, such as
    data protection, compliance, and innovative online services.
    
--  Bell Canada and Cisco announced they are working together to
    accelerate a number of strategic initiatives designed to develop and
    deliver a range of IP-based managed services to Canadian businesses,
    including unified communications, voice, wireless, IP contact center and
    security.
    
--  St. Helens & Knowsley Hospitals NHS Trust of the United Kingdom has
    been able to offer faster treatment, reduced waiting times and better use
    of NHS resources to their patients in parts of Liverpool and Merseyside
    after the deployment of a Community of Interest Network (COIN) based on
    Cisco technology.
    
--  SWIPE (Hong Kong) Ltd. has deployed a Cisco Unified Communications
    system to replace its traditional private automatic branch exchange
    telecommunications systems, providing a transparent connection between its
    employees, offices and customers.
    
--  Westcon Group, Inc., the leading specialty distributor in networking,
    convergence, security and mobility, extended its distribution agreement
    with Cisco into the Brazilian market. Westcon Brazil is now offering
    channel partners a full line of Cisco enterprise and small and medium-sized
    business (SMB) solutions.
    

Key Milestones

--  Cisco announced that it achieved a major milestone in the adoption of
    Cisco TelePresence with more than 500 units ordered since the solution's
    introduction in October 2006.
    
--  Cisco announced that it has shipped its 4-millionth Cisco Integrated
    Services Router, an achievement that was celebrated at the Cisco Partner
    Summit when John Chambers presented Coca-Cola Enterprises Chief Information
    Officer Esat Sezer with an award for deploying this milestone router.
    

Editor's Note:

--  Q3 FY 2008 conference call to discuss Cisco's results along with its
    business outlook to be held at 1:30 p.m. Pacific Time, Tuesday, May 6,
    2008. 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,
    May 6, 2008 to 4:30 p.m. Pacific Time, May 13, 2008 at 866-357-4205 (United
    States) or 203-369-0122 (international). The replay is also available from
    May 6, 2008 through July 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, May 6, 2008.
    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 Q3 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 of the network, our entry into new and adjacent markets, strengthening or expanding our positions in large, established markets, and the power of our business model) 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, our customer markets and 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 our product and service markets; 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 lean manufacturing model; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve 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 reports on Form 10-K and Form 10-Q. 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 reports on Form 10-K and Form 10-Q, as each may be amended from time to time. Cisco's results of operations for the three and nine months ended April 26, 2008 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 to the Securities and Exchange Commission.

Copyright ©2008 Cisco Systems, Inc. All rights reserved. Cisco, the Cisco logo, Cisco Nexus, Cisco TelePresence, 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. CableLabs and DOCSIS are registered trademarks of Cable Television Laboratories, Inc. 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      Nine Months Ended
                            ----------------------- -----------------------

                             April 26,   April 28,   April 26,   April 28,
                               2008        2007        2008        2007
                            ----------- ----------- ----------- -----------
NET SALES:
Product                     $     8,199 $     7,481 $    24,459 $    21,520
Service                           1,592       1,385       4,717       3,969
                            ----------- ----------- ----------- -----------
Total net sales                   9,791       8,866      29,176      25,489
                            ----------- ----------- ----------- -----------
COST OF SALES:
Product                           2,865       2,685       8,570       7,728
Service                             621         534       1,788       1,493
                            ----------- ----------- ----------- -----------
Total cost of sales               3,486       3,219      10,358       9,221
                            ----------- ----------- ----------- -----------
GROSS MARGIN                      6,305       5,647      18,818      16,268

OPERATING EXPENSES:
Research and development          1,439       1,144       3,847       3,321
Sales and marketing               2,129       1,830       6,216       5,242
General and administrative          479         378       1,489       1,082
Amortization of purchased
 intangible assets                  117          97         350         298
In-process research and
 development                         --           1           3           7
                            ----------- ----------- ----------- -----------
Total operating expenses          4,164       3,450      11,905       9,950
                            ----------- ----------- ----------- -----------
OPERATING INCOME                  2,141       2,197       6,913       6,318

Interest income, net                201         189         636         518

Other income (loss), net           (33)          33          20          94
                            ----------- ----------- ----------- -----------

Interest and other income
 (loss), net                        168         222         656         612
                            ----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR
 INCOME TAXES                     2,309       2,419       7,569       6,930
Provision for income taxes          536         545       1,531       1,527
                            ----------- ----------- ----------- -----------
NET INCOME                  $     1,773 $     1,874 $     6,038 $     5,403
                            ----------- ----------- ----------- -----------

Net income per share:
Basic                       $      0.30 $      0.31 $      1.00 $      0.89
                            ----------- ----------- ----------- -----------

Diluted                     $      0.29 $      0.30 $      0.97 $      0.86
                            ----------- ----------- ----------- -----------

Shares used in per-share
 calculation:
Basic                             5,942       6,034       6,014       6,052
                            ----------- ----------- ----------- -----------
Diluted                           6,069       6,244       6,202       6,255
                            ----------- ----------- ----------- -----------




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

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

                            April 26,   April 28,   April 26,   April 28,
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

GAAP net income             $    1,773  $    1,874  $    6,038  $    5,403

  Employee share-based
   compensation expense            268         237         767         709
  Payroll tax on stock
   option exercises                  1           9          20          26
  Compensation expense
   related to acquisitions
   and investments (1)             286          16         359          64
  In-process research and
   development                      --           1           3           7
  Amortization of
   purchased intangible
   assets                          174         133         529         406
                            ----------  ----------  ----------  ----------
  Total adjustments to
   GAAP income before
   provision for income
   taxes                           729         396       1,678       1,212
                            ----------  ----------  ----------  ----------

  Income tax effect               (193)       (159)       (526)       (449)
  Effect of retroactive
   tax legislation (2)              --          --          --         (60)
                            ----------  ----------  ----------  ----------

  Total adjustments to
   GAAP provision for
   income taxes                   (193)       (159)       (526)       (509)
                            ----------  ----------  ----------  ----------

Non-GAAP net income         $    2,309  $    2,111  $    7,190  $    6,106
                            ----------  ----------  ----------  ----------

Diluted net income per
 share:
GAAP                        $     0.29  $     0.30  $     0.97  $     0.86
                            ----------  ----------  ----------  ----------

Non-GAAP                    $     0.38  $     0.34  $     1.16  $     0.98
                            ----------  ----------  ----------  ----------

Shares used in diluted net
 income per share
 calculation:
GAAP                             6,069       6,244       6,202       6,255
                            ----------  ----------  ----------  ----------

Non-GAAP                         6,052       6,233       6,192       6,241
                            ----------  ----------  ----------  ----------

(1) Compensation expense related to acquisitions and investments for the
    third quarter and first nine months of fiscal 2008 included an
    acquisition-related charge of $246 million related to the purchase of
    the remaining minority interest in Nuova Systems, Inc.

(2) In the second quarter of fiscal 2007, the Tax Relief and Health Care
    Act of 2006 reinstated the U.S. federal research and development
    (R&D) tax credit, retroactive to January 1, 2006. GAAP net income for
    the first nine months of fiscal 2007 included a $120 million tax
    benefit relating to the reinstatement of the U.S. federal R&D tax
    credit, including $60 million related to fiscal 2006 R&D expenses.
    Non-GAAP net income for the first nine months of fiscal 2007 excluded
    the $60 million tax benefit related to fiscal 2006 R&D expenses.

Additional reconciliations between GAAP and non-GAAP financial measures
are provided in the tables that follow on page 11.




                      CONSOLIDATED BALANCE SHEETS
                            (In millions)
                              (Unaudited)

                                                        April 26,  July 28,
                                                          2008       2007
                                                      ---------- ----------
ASSETS
Current assets:
  Cash and cash equivalents                           $    6,154 $    3,728
  Investments                                             18,279     18,538
  Accounts receivable, net of allowance for doubtful
   accounts of $183 at April 26, 2008 and $166 at
   July 28, 2007                                           4,183      3,989
  Inventories                                              1,279      1,322
  Deferred tax assets                                      2,078      1,953
  Prepaid expenses and other current assets                2,172      2,044
                                                      ---------- ----------
  Total current assets                                    34,145     31,574

Property and equipment, net                                4,045      3,893
Goodwill                                                  12,419     12,121
Purchased intangible assets, net                           2,181      2,540
Other assets                                               4,333      3,212
                                                      ---------- ----------
TOTAL ASSETS                                          $   57,123 $   53,340
                                                      ---------- ----------

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
  Current portion of long-term debt                   $      500 $       --
  Accounts payable                                           808        786
  Income taxes payable                                        83      1,740
  Accrued compensation                                     2,320      2,019
  Deferred revenue                                         6,103      5,391
  Other current liabilities                                3,545      3,422
                                                      ---------- ----------
  Total current liabilities                               13,359     13,358

Long-term debt                                             6,415      6,408
Income taxes payable                                       1,015         --
Deferred revenue                                           2,487      1,646
Other long-term liabilities                                  646        438
                                                      ---------- ----------
Total liabilities                                         23,922     21,850
                                                      ---------- ----------
Minority interest                                             63         10

Shareholders’ equity                                      33,138     31,480
                                                      ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY            $   57,123 $   53,340
                                                      ---------- ----------




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

                                                       Nine Months Ended
                                                      --------------------
                                                      April 26,  April 28,
                                                        2008       2007
                                                      ---------  ---------
Cash flows from operating activities:
  Net income                                          $   6,038  $   5,403
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                           1,314      1,039
  Employee share-based compensation expense                 767        709
  Share-based compensation expense related to
   acquisitions and investments                              67         27
  Provision for doubtful accounts                            34          6
  Deferred income taxes                                    (876)      (302)
  Excess tax benefits from share-based compensation        (375)      (648)
  In-process research and development                         3          7
  Net gains and impairment charges on investments          (109)      (154)
Change in operating assets and liabilities, net of
 effects of acquisitions:
    Accounts receivable                                    (219)        60
    Inventories                                              54         82
    Lease receivables, net                                 (320)      (131)
    Accounts payable                                         12        (17)
    Income taxes payable and receivable                     405        535
    Accrued compensation                                    301        275
    Deferred revenue                                      1,553        690
    Other assets                                           (357)      (355)
    Other liabilities                                       268        140
                                                      ---------  ---------
Net cash provided by operating activities                 8,560      7,366
                                                      ---------  ---------

Cash flows from investing activities:
  Purchases of investments                              (14,093)   (15,342)
  Proceeds from sales and maturities of investments      14,761     13,438
  Acquisition of property and equipment                    (908)      (912)
  Acquisition of businesses, net of cash and cash
   equivalents acquired                                    (385)      (387)
  Change in investments in privately held companies         (63)       (81)
  Other                                                       6        (87)
                                                      ---------  ---------

Net cash used in investing activities                      (682)    (3,371)
                                                      ---------  ---------

Cash flows from financing activities:
  Issuance of common stock                                2,501      3,719
  Repurchase of common stock                             (8,982)    (6,281)
  Proceeds from the termination of interest rate
   swaps                                                    432         --
  Excess tax benefits from share-based compensation         375        648
  Other                                                     222         79
                                                      ---------  ---------

Net cash used in financing activities                    (5,452)    (1,835)
                                                      ---------  ---------

Net increase in cash and cash equivalents                 2,426      2,160
Cash and cash equivalents, beginning of period            3,728      3,297
                                                      ---------  ---------
Cash and cash equivalents, end of period              $   6,154  $   5,457
                                                      ---------  ---------




                     ADDITIONAL FINANCIAL INFORMATION
                              (In millions)
                               (Unaudited)

                                                      April 26,   July 28,
                                                        2008        2007
                                                      ---------  ---------
CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents                             $   6,154  $   3,728
Fixed income securities                                  16,841     17,297
Publicly traded equity securities                         1,438      1,241
                                                      ---------  ---------

Total                                                 $  24,433  $  22,266
                                                      ---------  ---------

INVENTORIES
Raw materials                                         $     122  $     173
Work in process                                              48         45
Finished goods:
  Distributor inventory and deferred cost of sales          486        544
  Manufactured finished goods                               384        314
                                                      ---------  ---------

Total finished goods                                        870        858
Service-related spares                                      198        211
Demonstration systems                                        41         35
                                                      ---------  ---------

Total                                                 $   1,279  $   1,322
                                                      ---------  ---------

PROPERTY AND EQUIPMENT, NET
Land, buildings, and leasehold improvements           $   4,282  $   4,022
Computer equipment and related software                   1,742      1,605
Production, engineering, and other equipment              4,714      4,264
Operating lease assets                                      200        181
Furniture and fixtures                                      425        394
                                                      ---------  ---------
                                                         11,363     10,466
Less accumulated depreciation and amortization           (7,318)    (6,573)
                                                      ---------  ---------

Total                                                 $   4,045  $   3,893
                                                      ---------  ---------

OTHER ASSETS
Deferred tax assets                                   $   1,851  $   1,060
Investments in privately held companies                     678        643
Income tax receivable                                        --        277
Lease receivables, net (1)                                  754        539
Financed service contracts (2)                              563        377
Other                                                       487        316
                                                      ---------  ---------

Total                                                 $   4,333  $   3,212
                                                      ---------  ---------

DEFERRED REVENUE
Service                                               $   5,698  $   4,840
Product
  Unrecognized revenue on product shipments and other
   deferred revenue                                       2,224      1,769
  Cash receipts related to unrecognized revenue from
   two-tier distributors                                    668        428
                                                      ---------  ---------

Total product deferred revenue                            2,892      2,197
                                                      ---------  ---------

Total                                                 $   8,590  $   7,037
                                                      ---------  ---------

Reported as:
Current                                               $   6,103  $   5,391
Noncurrent                                                2,487      1,646
                                                      ---------  ---------
Total                                                 $   8,590  $   7,037
                                                      ---------  ---------

Note:
(1) The current portion of lease receivables, net, which was $494 million
    and $389 million as of April 26, 2008 and July 28, 2007, respectively,
    is recorded in prepaid expenses and other current assets.

(2) The current portion of financed service contracts, which was $652
    million and $476 million as of April 26, 2008 and July 28, 2007,
    respectively, is recorded in prepaid expenses and other current assets.
    These financed service contracts primarily relate to technical support
    services and the revenue is deferred and recognized ratably over the
    period during which the services are to be performed, which is
    typically from one to three years.





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

                                             Three Months    Nine Months
                                                Ended           Ended
                                            -------------------------------
                                             April   April   April   April
                                              26,     28,     26,     28,
                                             2008    2007    2008    2007
                                            ------- ------- ------- -------
Cost of sales -- product                    $    10 $    10 $    30 $    33
Cost of sales -- service                         27      25      80      79
                                            ------- ------- ------- -------
Employee share-based compensation expense
 in cost of sales                                37      35     110     112
                                            ------- ------- ------- -------

Research and development                         78      75     224     223
Sales and marketing                             114     101     324     294
General and administrative                       39      26     109      80
                                            ------- ------- ------- -------
Employee share-based compensation expense
 in operating expenses                          231     202     657     597
                                            ------- ------- ------- -------
Total employee share-based compensation
 expense                                    $   268 $   237 $   767 $   709
                                            ------- ------- ------- -------

The income tax benefit for employee share-based compensation expense was
$87 million and $247 million for the third quarter and first nine months of
fiscal 2008, respectively, and $102 million and $265 million for the third
quarter and first nine months of fiscal 2007, respectively.




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

                                 Three Months Ended     Nine Months Ended
                                --------------------  --------------------
                                April 26,  April 28,  April 26,  April 28,
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Shares used in diluted net
 income per share
 calculation -- GAAP                6,069      6,244      6,202      6,255
Effect of SFAS 123(R)                 (17)       (11)       (10)       (14)
                                ---------  ---------  ---------  ---------
Shares used in diluted net
 income per share
 calculation -- Non-GAAP            6,052      6,233      6,192      6,241
                                ---------  ---------  ---------  ---------




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

                                        Three Months Ended
                        --------------------------------------------------
                         April 26,   January 26,    July 28,    April 28,
                           2008         2008         2007         2007
                        -----------  -----------  -----------  -----------
GAAP cost of sales      $     3,486  $     3,491  $     3,365  $     3,219
  Employee share-based
   compensation expense         (37)         (41)         (31)         (35)

  Amortization of
   purchased intangible
   assets                       (57)         (61)         (48)         (36)
                        -----------  -----------  -----------  -----------
Non-GAAP cost of sales  $     3,392  $     3,389  $     3,286  $     3,148
                        -----------  -----------  -----------  -----------

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