Cisco Systems, Inc. 2014 Annual Report
Total Page：16
File Type：pdf, Size：1020Kb
Cisco Systems, Inc. 2014 Annual Report Annual Report 2014 Letter to Shareholders To Our Shareholders, When we look back on fiscal 2014, we could describe to capture this opportunity. With this robust foundation, it as one of the most innovative years in Cisco’s history. we are able to provide our customers with an integrated, Through our innovation strategy of build, buy, partner, and network-centric architectural solution that not only solves integrate, we brought new architectures to market for the their IT challenges but also helps them achieve their desired next generation of networking, security, data center, and business outcomes. collaboration products and solutions, and we made bold Our vision is clear, and our strategy is working and has moves to help our customers capitalize on the changes in largely played out as we expected. In 2011, I said that the market. customers will view the network as the most strategic We managed our business well amid a great deal of change asset, not just in communications but also in IT and that this and a tough market. Our fiscal year began with several would enable us to become the number-one IT company. external headwinds, including the U.S. federal government I am more confident than ever that we can make that shutdown and the possibility of a U.S. default, combined aspiration a reality. with a significant slowdown in emerging countries. Even Innovation, Disruption, and Transformation with this backdrop, we ended fiscal 2014 with revenue of $47.1 billion, making it the second strongest year in our The pace of change being experienced in almost every history. We also continued to make progress in driving a industry today is unprecedented. Companies are telling greater software mix and higher recurring revenue, which us that in order to seize the huge opportunities, as well as are key pillars of our strategy. navigate the challenges that are presented by the Internet of Everything (IoE), they need a new model that transforms We remain focused on shareholder value creation by IT operations and unifies infrastructure, platforms, and maintaining the flexibility to make the right long-term applications to reduce complexity, accelerate service strategic decisions for our company, driving efficiencies deployment, and increase security. At Cisco we call this in our cost structure and returning capital through model “Fast IT.” Importantly, Fast IT brings fast innovation dividends and share repurchase to our shareholders. for the company and embraces the cloud, virtualization, and During fiscal 2014 we delivered strong operating margins. mobility technology transitions, as well as data analytics, Additionally, we were very pleased to have substantially security, and the Internet-connected network of everyday exceeded our goal of returning a minimum of 50% of physical objects commonly referred to as the Internet of our free cash flow annually to shareholders by returning Things. We believe the Fast IT model is the IT operating $9.5 billion through share buybacks and $3.8 billion in model for the IoE. In our view, success in delivering Fast dividends, totaling a record $13.3 billion returned to IT is dependent on the ability to bring together multiple shareholders in the fiscal year. technologies and services into architectures, solutions, and It is clearer than ever that every company is becoming a outcomes in a way that only Cisco can. technology company, with the common element being the In fiscal 2014, we introduced several crucial components network at the center, driven by applications and enabling of Fast IT, the most fundamental of which is our Application the rapid introduction of new business models, which Centric Infrastructure (ACI) platform. ACI is Cisco’s vision are disrupting old models in record time. Every company for the next generation of networking, in which networks is increasingly dependent on the network, not just for are fully responsive to the applications that are driving our communications but also for how the company runs, economy. Cisco’s ACI solution is unique in its ability to offer analyzes, and grows its business. full visibility and integrated management of both physical In this paradigm, the reliability, scale, speed, and and virtual networked IT resources, all built around the application-centricity of the network are even more needs of applications. The initial feedback we have received important, and we believe this is where our unique strength from customers on ACI has been extremely positive, lies. As the leader trusted by businesses and governments, and the momentum is strong. We believe we are now with approximately 70,000 partners and an installed base delivering on the benefits promised by software-defined of approximately $200 billion, Cisco is very well positioned networking (SDN) in a way that no one yet has been able Cisco Systems, Inc. 1 Annual Report 2014 Letter to Shareholders to do, and our customers are recognizing us as the leader In fiscal 2014, that transformation continued but has in SDN. Similarly, we have enhanced our offering to service not finished yet. We continue to align our employees providers, as they embrace network function virtualization, and resources to high-priority growth opportunities and by launching new products intended to make network to develop, retain, and attract the skills, capabilities, infrastructure more open, programmable, virtualized, and experience, and knowledge we need in our future automated than ever before. workforce. In fiscal 2014, we restructured our engineering team in order to implement a more agile, cross-functional During the year, we expanded our leadership in cloud development model. We also began the integration of our infrastructure and the private and hybrid cloud markets by product and services sales teams into a unified solutions introducing new cloud solutions designed to address the sales force, a significant step forward in the acceleration public cloud opportunity and the fragmentation of cloud of our strategy. The customer has always been our environments. By facilitating the interconnection of private, number-one priority, but today, more than ever, we are hybrid, and public clouds to create our “Intercloud” offering, realigning ourselves to deliver the business outcomes for we are enabling customers to move their cloud workloads which our customers are asking. across heterogeneous clouds according to their needs, with the necessary policy, management, and security. We Winning in the Market are focused on delivering high-value cloud services and We are the market leader in most of our markets, with expanding our Intercloud ecosystem with partners who are one of the broadest portfolios, providing a differentiated embracing the Cisco ACI vision and our open approach in competitive advantage. We win, in our view, by delivering order to differentiate their cloud offers through the value of innovations such as Application Centric Infrastructure the network. and security and in integrated architectures and solutions We augmented our own internal development with eight that enable our customers to accelerate their business strategic acquisitions in fiscal 2014, four in the software opportunities, cut their costs, and reduce their risk. space and two each in the areas of data center and security, which, we believe, will enable us to extend We are investing aggressively in the growth markets that our market leadership and create new opportunities. are most important to our customers. As we look to the We recognize the growing shift in our customer base future, we see long-term opportunities to continue to toward software-enabled business models as well as drive profitable growth, most notably in cloud, data center, subscription- and license-based consumption models, mobility, security, collaboration, services, and software. We and we are constantly evaluating companies that have built realize that we must rebalance our resources and continue and refined capabilities that deliver value to customers. to invest in innovation and talent in order to capitalize on We are particularly pleased that several of our acquisitions, these opportunities and continue to lead in this dynamic Sourcefire and Meraki being two examples, are now environment. growing more quickly within Cisco than they were as standalone companies. This momentum, in our view, Financial Highlights highlights the value of integrating leading technologies into broader architectures and solutions. For fiscal 2014, revenue was $47.1 billion, a decrease of 3% compared with fiscal 2013. Product revenue was We also continue to take the bold steps necessary to $36.2 billion, a decrease of 5%, while Service revenue transform our business model. As a company, we have increased 4% to $11.0 billion, accounting for 23% of total always embraced change, and that has enabled us to revenue. Deferred revenue increased by 5% from the lead in the market for almost 30 years. Three years prior year, due partly to increased subscription offerings. ago, we saw that the changes occurring in our market, We expect both deferred and recurring revenue to grow many of which are being driven by the network, would as software revenues increase in the overall mix. Net require transformational change for Cisco. To address income was $7.9 billion, down 21% from fiscal 2013, while the accelerating pace of change in the market, we began earnings per share on a fully diluted basis were $1.49, a transformation plan to drive greater innovation, speed, down 20% year over year. agility, and efficiency in our business and to transform Cisco from a company selling networking boxes into one selling Our balance sheet remains strong, with total assets in fiscal architectures, solutions, and business outcomes. 2014 of $105.1 billion, representing a 4% increase from 2 Cisco Systems, Inc. Annual Report 2014 Letter to Shareholders fiscal 2013. Cash, cash equivalents, and investments were Service revenue increased 4% from the prior fiscal year, $52.1 billion, and we generated $12.3 billion in cash flows driven by strong renewals, large multiyear service wins, from operating activities during the fiscal year.