Cisco 2007 Annual Report Download - page 25

28 Cisco Systems, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Product Sales by Groups of Similar Products
Routers The increase in net product sales related to routers in fiscal 2007 compared with fiscal 2006 was primarily due to higher sales
of our high-end routers, with strength in our Cisco CRS-1 Carrier Routing System, Cisco 7600 Series, and Cisco 12000 Series products.
Sales of our high-end routers, which represent a larger proportion of our total router sales compared with midrange and low-end routers,
increased by approximately $855 million in fiscal 2007 compared with fiscal 2006. Our high-end router sales are primarily to service
providers, which tend to make larger and more uneven purchases. We believe that the increase in high-end router sales is attributable to
service providers continuing to scale network capacity to accommodate actual and projected increases in data, voice and video traffic.
During fiscal 2007, our sales of our integrated services routers (ISRs), which are included in the midrange and low-end routers, also increased
and contributed to growth in sales of our advanced technologies products, such as security, unified communications, and wireless.
Switches The increase in net product sales related to switches in fiscal 2007 was primarily due to higher sales of local-area network (LAN)
fixed-configuration switches, which increased during fiscal 2007 by approximately $1.1 billion compared with fiscal 2006. Sales of LAN
modular switches also increased during fiscal 2007 compared with fiscal 2006. The increase in sales of LAN switches was a result of the
continued adoption by our customers of new technologies, including Gigabit Ethernet, 10 Gigabit Ethernet, and Power over Ethernet.
This has resulted in higher sales of fixed-configuration switches, including the Cisco Catalyst 3750 Series, the Cisco Catalyst 2960 Series,
the Cisco Catalyst 3560 Series, and our high-end modular switches, the Cisco Catalyst 6500 Series, as new technologies are deployed
throughout our customers’ networks from the data center to the wiring closet. Additionally, growth in advanced technologies such as
unified communications and wireless LANs creates demand for LAN fixed-configuration and modular switching infrastructure as additional
endpoints are added to the network.
Advanced Technologies The increase in net product sales related to advanced technologies in fiscal 2007 compared with fiscal 2006 was
primarily due to the following:
• Video systems, which include solutions and systems designed to enable video-specific delivery systems for service providers,
increased by approximately $1.2 billion during fiscal 2007. The increases were attributable to several factors, including Scientific-Atlanta
product sales being included in fiscal 2006 only subsequent to its acquisition in February 2006 compared with a full year in fiscal 2007;
an increase in the demand for high-definition (HD) set-top boxes; network upgrades; international expansion; and the new Federal
Communications Commission (FCC) requirements effective July 1, 2007, which required separable security for set-top boxes sold in
the United States. We believe that the new FCC requirements had a positive impact on our sales of video systems in fiscal 2007 which
will not recur in fiscal 2008; however, we are not able to quantify the effect of the new requirements on the increase in sales compared
with fiscal 2006.
• Unified communications sales increased by approximately $390 million during fiscal 2007, primarily due to sales of IP phones and
associated software as our customers continued to transition from an analog-based to an IP-based infrastructure, and also the addition
of sales from the acquisition of WebEx Communications, Inc. (“WebEx”).
• Home networking product sales increased by approximately $240 million during fiscal 2007. Scientific-Atlanta products composed
the majority of the increase in home networking product sales during fiscal 2007.
• Sales of security products increased by approximately $240 million during fiscal 2007, primarily due to module and line card sales
related to our routers and LAN modular switches as customers continued to emphasize network security, and also due to sales of our
next-generation adaptive security appliance product, which integrates multiple technologies including virtual private network (VPN),
firewall, and intrusion prevention services on one platform.
• Sales of wireless LAN products increased by approximately $190 million during fiscal 2007 primarily due to new customers, continued
deployments with existing customers, and their adoption of our unified architecture platform.
• Other sales of advanced technologies relating to sales of storage area networking products increased by approximately $110 million
during fiscal 2007 and application networking services increased by approximately $85 million during fiscal 2007.
Other Product Revenue The increase in other product revenue during fiscal 2007 compared with fiscal 2006 was primarily due to an
increase in sales of optical networking products, sales of IP-based communications solutions to service providers and the additional
contribution from Scientific-Atlanta. Our sales of optical networking products were previously included in our advanced technologies
product category and prior year amounts have been reclassified to conform to the current year’s presentation. Other product revenue
also includes sales of emerging technology products.