Cisco 2011 Annual Report Download - page 24

OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC
AND MARKET CONDITIONS AND THE UNCERTAIN GEOPOLITICAL ENVIRONMENT
Challenging economic conditions worldwide have from time to time contributed, and may continue to contribute,
to slowdowns in the communications and networking industries at large, as well as in specific segments and
markets in which we operate, resulting in:
• Reduced demand for our products as a result of continued constraints on IT-related capital spending by
our customers, particularly service providers, and other customer markets as well
• Increased price competition for our products, not only from our competitors but also as a consequence
of customers disposing of unutilized products
• Risk of excess and obsolete inventories
• Risk of supply constraints
• Risk of excess facilities and manufacturing capacity
• Higher overhead costs as a percentage of revenue and higher interest expense
Instability in the global credit markets, including the recent European economic and financial turmoil related to
sovereign debt issues in certain countries, the instability in the geopolitical environment in many parts of the
world and other disruptions, such as changes in energy costs, may continue to put pressure on global economic
conditions. The world has recently experienced a global macroeconomic downturn, and if global economic and
market conditions, or economic conditions in key markets, remain uncertain or deteriorate further, we may
experience material impacts on our business, operating results, and financial condition.
Our operating results in one or more segments may also be affected by uncertain or changing economic
conditions particularly germane to that segment or to particular customer markets within that segment. For
example, during fiscal 2011 we experienced and continue to see a decrease in spending by our public sector
customers in almost every developed market around the world.
WE HAVE BEEN INVESTING IN PRIORITIES, INCLUDING OUR FOUNDATIONAL PRIORITIES,
AND IF THE RETURN ON THESE INVESTMENTS IS LOWER OR DEVELOPS MORE SLOWLY
THAN WE EXPECT, OUR OPERATING RESULTS MAY BE HARMED
We have been realigning and are dedicating resources to focus on certain priorities, such as leadership in our core
routing, switching and services, including security and mobility solutions; collaboration; data center
virtualization and cloud; video; and architectures for business transformation. However, the return on our
investments in such priorities may be lower, or may develop more slowly, than we expect. If we do not achieve
the benefits anticipated from these investments (including if our selection of areas for investment does not play
out as we expect), or if the achievement of these benefits is delayed, our operating results may be adversely
affected.
OUR REVENUE FOR A PARTICULAR PERIOD IS DIFFICULT TO PREDICT, AND A SHORTFALL
IN REVENUE MAY HARM OUR OPERATING RESULTS
As a result of a variety of factors discussed in this report, our revenue for a particular quarter is difficult to
predict, especially in light of the recent global economic downturn and related market uncertainty. Our net sales
may grow at a slower rate than in past periods or may decline, which occurred in fiscal 2009. Our ability to meet
financial expectations could also be adversely affected if the nonlinear sales pattern seen in some of our past
quarters recurs in future periods. We have experienced periods of time during which shipments have exceeded
net bookings or manufacturing issues have delayed shipments, leading to nonlinearity in shipping patterns. In
addition to making it difficult to predict revenue for a particular period, nonlinearity in shipping can increase
costs, because irregular shipment patterns result in periods of underutilized capacity and periods in which
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