Cisco 2014 Annual Report Download - page 4

2 Cisco Systems, Inc.
Annual Report 2014
Letter to Shareholders
to do, and our customers are recognizing us as the leader
in SDN. Similarly, we have enhanced our oering to service
providers, as they embrace network function virtualization,
by launching new products intended to make network
infrastructure more open, programmable, virtualized, and
automated than ever before.
During the year, we expanded our leadership in cloud
infrastructure and the private and hybrid cloud markets by
introducing new cloud solutions designed to address the
public cloud opportunity and the fragmentation of cloud
environments. By facilitating the interconnection of private,
hybrid, and public clouds to create our “Intercloud” oering,
we are enabling customers to move their cloud workloads
across heterogeneous clouds according to their needs,
with the necessary policy, management, and security. We
are focused on delivering high-value cloud services and
expanding our Intercloud ecosystem with partners who are
embracing the Cisco ACI vision and our open approach in
order to dierentiate their cloud oers through the value of
the network.
We augmented our own internal development with eight
strategic acquisitions in scal 2014, four in the software
space and two each in the areas of data center and
security, which, we believe, will enable us to extend
our market leadership and create new opportunities.
We recognize the growing shift in our customer base
toward software-enabled business models as well as
subscription- and license-based consumption models,
and we are constantly evaluating companies that have built
and rened capabilities that deliver value to customers.
We are particularly pleased that several of our acquisitions,
Sourcere and Meraki being two examples, are now
growing more quickly within Cisco than they were as
standalone companies. This momentum, in our view,
highlights the value of integrating leading technologies into
broader architectures and solutions.
We also continue to take the bold steps necessary to
transform our business model. As a company, we have
always embraced change, and that has enabled us to
lead in the market for almost 30 years. Three years
ago, we saw that the changes occurring in our market,
many of which are being driven by the network, would
require transformational change for Cisco. To address
the accelerating pace of change in the market, we began
a transformation plan to drive greater innovation, speed,
agility, and eciency in our business and to transform Cisco
from a company selling networking boxes into one selling
architectures, solutions, and business outcomes.
In fiscal 2014, that transformation continued but has
not finished yet. We continue to align our employees
and resources to high-priority growth opportunities and
to develop, retain, and attract the skills, capabilities,
experience, and knowledge we need in our future
workforce. In fiscal 2014, we restructured our engineering
team in order to implement a more agile, cross-functional
development model. We also began the integration of our
product and services sales teams into a unified solutions
sales force, a significant step forward in the acceleration
of our strategy. The customer has always been our
number-one priority, but today, more than ever, we are
realigning ourselves to deliver the business outcomes for
which our customers are asking.
Winning in the Market
We are the market leader in most of our markets, with
one of the broadest portfolios, providing a differentiated
competitive advantage. We win, in our view, by delivering
innovations such as Application Centric Infrastructure
and security and in integrated architectures and solutions
that enable our customers to accelerate their business
opportunities, cut their costs, and reduce their risk.
We are investing aggressively in the growth markets that
are most important to our customers. As we look to the
future, we see long-term opportunities to continue to
drive profitable growth, most notably in cloud, data center,
mobility, security, collaboration, services, and software. We
realize that we must rebalance our resources and continue
to invest in innovation and talent in order to capitalize on
these opportunities and continue to lead in this dynamic
environment.
Financial Highlights
For fiscal 2014, revenue was $47.1 billion, a decrease
of 3% compared with fiscal 2013. Product revenue was
$36.2 billion, a decrease of 5%, while Service revenue
increased 4% to $11.0 billion, accounting for 23% of total
revenue. Deferred revenue increased by 5% from the
prior year, due partly to increased subscription offerings.
We expect both deferred and recurring revenue to grow
as software revenues increase in the overall mix. Net
income was $7.9 billion, down 21% from fiscal 2013, while
earnings per share on a fully diluted basis were $1.49,
down 20% year over year.
Our balance sheet remains strong, with total assets in fiscal
2014 of $105.1 billion, representing a 4% increase from