Cisco 2014 Annual Report Download - page 31

use of the network as the platform for all forms of communications and IT. For example, in fiscal 2009 we launched our Cisco
Unified Computing System (UCS), our next-generation enterprise data center platform architected to unite computing, network,
storage access and virtualization resources in a single system, which is designed to address the fundamental transformation occurring
in the enterprise data center. While our Cisco UCS offering remains a significant focus area for us, several market transitions are also
shaping our strategies and investments.
One such market transition we are focusing on is the move towards more programmable, flexible and virtual networks. In our view,
this evolution is in its very early stages, and we believe the successful products and solutions in this market will combine ASICs,
hardware and software elements together. Other examples include our focus on the IoE market transition, a potentially significant
transition in the IT industry, and a transition in cloud where we have announced plans to architect the Cisco Intercloud solution.
The process of developing new technology, including technology related to more programmable, flexible and virtual networks
and technology related to other market transitions, including IoE and cloud, is complex and uncertain, and if we fail to
accurately predict customers’ changing needs and emerging technological trends our business could be harmed. We must
commit significant resources, including the investments we have been making in our priorities to developing new products
before knowing whether our investments will result in products the market will accept. In particular, if our model of the
evolution of networking does not emerge as we believe it will, or if the industry does not evolve as we believe it will, or if our
strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or
limited value. For example, if we do not introduce products related to network programmability, such as software-defined-
networking products, in a timely fashion, or if product offerings in this market that ultimately succeed are based on
technology, or an approach to technology, that differs from ours, such as, for example, networking products based on “white
box” hardware, our business could be harmed. Similarly, our business could be harmed if we fail to develop, or fail to develop
in a timely fashion, offerings to address other transitions, or if the offerings addressing these other transitions that ultimately
succeed are based on technology, or an approach to technology, different from ours.
Furthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning
and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result
in competitors, some of which may also be our strategic alliance partners, providing those solutions before we do and loss of
market share, revenue, and earnings. In addition, the growth in demand for technology delivered as a service enables new
competitors to enter the market. The success of new products depends on several factors, including proper new product
definition, component costs, timely completion and introduction of these products, differentiation of new products from those
of our competitors, and market acceptance of these products. There can be no assurance that we will successfully identify new
product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our
products or that products and technologies developed by others will not render our products or technologies obsolete or
noncompetitive. The products and technologies in our other product categories and key growth areas may not prove to have
the market success we anticipate, and we may not successfully identify and invest in other emerging or new products.
CHANGES IN INDUSTRY STRUCTURE AND MARKET CONDITIONS COULD LEAD TO CHARGES RELATED
TO DISCONTINUANCES OF CERTAIN OF OUR PRODUCTS OR BUSINESSES, ASSET IMPAIRMENTS AND
WORKFORCE REDUCTIONS OR RESTRUCTURINGS
In response to changes in industry and market conditions, we may be required to strategically realign our resources and to
consider restructuring, disposing of, or otherwise exiting businesses. Any resource realignment, or decision to limit investment
in or dispose of or otherwise exit businesses, may result in the recording of special charges, such as inventory and technology-
related write-offs, workforce reduction or restructuring costs, charges relating to consolidation of excess facilities, or claims
from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate
recoverability of our carrying basis of assets, including purchased intangible assets, could change as a result of such
assessments and decisions. Although in certain instances our supply agreements allow us the option to cancel, reschedule, and
adjust our requirements based on our business needs prior to firm orders being placed, our loss contingencies may include
liabilities for contracts that we cannot cancel with contract manufacturers and suppliers. Further, our estimates relating to the
liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, we are required to perform
goodwill impairment tests on an annual basis and between annual tests in certain circumstances, and future goodwill
impairment tests may result in a charge to earnings.
In August 2014, as part of our strategy of continuing to invest in growth, innovation and talent, while also managing costs and
driving efficiencies, we announced a restructuring plan that will impact up to 6,000 employees, representing approximately 8
percent of our global workforce. We expect to take action under this plan beginning in the first quarter of fiscal 2015. The
implementation of this restructuring plan may be disruptive to our business, and following completion of the restructuring plan
our business may not be more efficient or effective than prior to implementation of the plan. Our restructuring activities,
including any related charges and the impact of the related headcount restructurings, could have a material adverse effect on
our business, operating results, and financial condition.
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