Cisco 2008 Annual Report Download - page 23

28 Cisco Systems, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
European Markets The increase in net product sales in the European Markets theater in fiscal 2008 compared with fiscal 2007 was
attributable to growth across our customer markets, with particular strength in the commercial market. In fiscal 2008, we experienced strong
revenue growth in Germany and the United Kingdom, although we experienced slower year-over-year growth in sales in the European
Markets overall compared with fiscal 2007.
Emerging Markets In fiscal 2008, net product sales in the Emerging Markets theater increased compared with fiscal 2007 due to increased
shipments and recognition of previously deferred revenue. We experienced continued network deployments across our customer markets
in this theater, with particular strength in Brazil and Russia. Certain of our customers in the Emerging Markets theater tend to make large
and sporadic purchases, and the net sales related to these transactions may also be affected by the timing of revenue recognition. Further,
some customers may continue to require greater levels of financing arrangements, service, and support in future periods, which may also
impact the timing of recognition of the revenue for this theater. As a result of these and other factors, the growth rate in net product sales
for this theater in fiscal 2008 is not likely to continue consistently throughout future periods. Net product sales may fluctuate from period
to period and such changes may or may not be indicative of a trend in future net product sales for this theater.
Asia Pacific The increase in net product sales in the Asia Pacific theater in fiscal 2008 compared with fiscal 2007 was primarily attributable
to the balanced growth in the enterprise, service provider, and commercial markets. In particular, China and India experienced strong
growth in fiscal 2008.
Japan Net product sales in the Japan theater increased in fiscal 2008 compared with fiscal 2007 primarily due to service providers
building out next-generation networks.
Net Product Sales by Groups of Similar Products
Routers The increase in net product sales related to routers in fiscal 2008 compared with fiscal 2007 was primarily due to higher sales of
our high-end routers, with strength in our Cisco CRS-1 Carrier Routing System and Cisco 7600 Series Routers. Sales of our high-end routers,
which represent a larger proportion of our total router sales than sales of our midrange and low-end routers, increased by approximately
$925 million in fiscal 2008 compared with fiscal 2007. Our high-end router sales are primarily to service providers, which tend to make large
and sporadic purchases. We believe that the increase in high-end router sales is attributable to service providers scaling their network
capacity to accommodate actual and projected increases in data, voice, video traffic and implementation of next-generation networks to
provide customized solutions. In fiscal 2008, our sales of our integrated services routers, which we include in the category of midrange and
low-end routers, also increased and contributed to growth in sales of our advanced technologies products, such as our security, unified
communications, and wireless offerings.
Switches The increase in net product sales related to switches in fiscal 2008 was primarily due to higher sales of local-area network
(LAN) fixed-configuration switches, which increased in fiscal 2008 by approximately $815 million compared with fiscal 2007, with the
increase driven primarily by higher sales of the Cisco Catalyst 2960, 3560, and 3750 Series Switches. The increase in sales of LAN
fixed-configuration switches was a result of the continued adoption by our customers of new technologies throughout their networks
from the data center to the wiring closet, including Gigabit Ethernet, 10 Gigabit Ethernet, and Power over Ethernet. Additionally, growth in
advanced technologies, such as unified communications and wireless LANs, created demand for LAN fixed-configuration infrastructure
as additional endpoints are added to the network. Net product sales related to our modular switches were relatively flat in fiscal 2008
compared with fiscal 2007.
Advanced Technologies The increase in net product sales related to advanced technologies in fiscal 2008 compared with fiscal 2007
was primarily due to the following:
• Sales of unified communications increased by approximately $825 million, due to the contribution of sales from WebEx, which we
acquired during the fourth quarter of fiscal 2007, and due to sales of IP phones and associated messaging, conferencing and contact
center software as our customers continued to transition from an analog-based to an IP-based infrastructure.
• Sales of video systems, which include solutions and systems designed to enable video-specific delivery systems for service providers,
increased by approximately $355 million. The increase was attributable to several factors, including an increase in the demand for
high-definition (HD) and IP set-top boxes, network upgrades, and international growth. Our sales of video systems grew at a slower
year-over-year rate in fiscal 2008 compared with the year-over-year rate in fiscal 2007, as our sales of video systems products in fiscal
2007 benefited from the U.S. Federal Communications Commission (FCC) requirements effective July 1, 2007, which required separable
security for set-top boxes sold in the United States.