Cisco 2011 Annual Report Download - page 34

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From time to time, we have made acquisitions that resulted in charges in an individual quarter. These charges
may occur in any particular quarter, resulting in variability in our quarterly earnings. In addition, our effective tax
rate for future periods is uncertain and could be impacted by mergers and acquisitions. Risks related to new
product development also apply to acquisitions. Please see the risk factors above, including the risk factor
entitled “We depend upon the development of new products and enhancements to existing products, and if we
fail to predict and respond to emerging technological trends and customers’ changing needs, our operating results
and market share may suffer” for additional information.
ENTRANCE INTO NEW OR DEVELOPING MARKETS EXPOSES US TO ADDITIONAL
COMPETITION AND WILL LIKELY INCREASE DEMANDS ON OUR SERVICE AND SUPPORT
OPERATIONS
As we focus on new market opportunities—for example, storage; wireless; security; transporting data, voice, and
video traffic across the same network; and other areas within our New Products category, emerging technologies,
and our priorities—we will increasingly compete with large telecommunications equipment suppliers as well as
startup companies. Several of our competitors may have greater resources, including technical and engineering
resources, than we do. Additionally, as customers in these markets complete infrastructure deployments, they
may require greater levels of service, support, and financing than we have provided in the past, especially in
emerging countries. Demand for these types of service, support, or financing contracts may increase in the future.
There can be no assurance that we can provide products, service, support, and financing to effectively compete
for these market opportunities.
Further, provision of greater levels of services, support and financing by us may result in a delay in the timing of
revenue recognition. In addition, entry into other markets, such as our entry into the consumer market, has
subjected and will subject us to additional risks, particularly to those markets, including the effects of general
market conditions and reduced consumer confidence.
INDUSTRY CONSOLIDATION MAY LEAD TO INCREASED COMPETITION AND MAY HARM
OUR OPERATING RESULTS
There has been a trend toward industry consolidation in our markets for several years. We expect this trend to
continue as companies attempt to strengthen or hold their market positions in an evolving industry and as
companies are acquired or are unable to continue operations. For example, some of our current and potential
competitors for enterprise data center business have made acquisitions, or announced new strategic alliances,
designed to position them with the ability to provide end-to-end technology solutions for the enterprise data
center. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances
with our competitors, thereby reducing their business with us. We believe that industry consolidation may result
in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to
more variability in our operating results and could have a material adverse effect on our business, operating
results, and financial condition. Furthermore, particularly in the service provider market, rapid consolidation will
lead to fewer customers, with the effect that loss of a major customer could have a material impact on results not
anticipated in a customer marketplace composed of more numerous participants.
PRODUCT QUALITY PROBLEMS COULD LEAD TO REDUCED REVENUE, GROSS MARGINS,
AND NET INCOME
We produce highly complex products that incorporate leading-edge technology, including both hardware and
software. Software typically contains bugs that can unexpectedly interfere with expected operations. There can
be no assurance that our preshipment testing programs will be adequate to detect all defects, either ones in
individual products or ones that could affect numerous shipments, which might interfere with customer
satisfaction, reduce sales opportunities, or affect gross margins. In the past, we have had to replace certain
components and provide remediation in response to the discovery of defects or bugs in products that we had
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