Cisco 2015 Annual Report Download - page 3

Cisco Systems, Inc. 1
Annual Report 2015
Letters to Shareholders
To Our Shareholders,
Fiscal 2015 was a great year for Cisco. As we marked
our thirtieth anniversary year, we witnessed the inection
point in the next wave of the Internet. This next wave will
have ve to ten times the impact of the rst. As fty billion
devices come online and connect over the next few years,
the network and Cisco have never been more relevant or
more strategic. In our view, it is clear that the opportunities
ahead are even brighter than those of our past.
At Cisco, we believe much of our success has come from
our ability to lead market transitions. More than ve years
ago, we saw the impact that connecting people, processes,
data, and things would have on organizations and countries.
Today, across the board, our customers’ top priority is to
use technology to drive growth and productivity, manage
risk, and gain competitive advantage. In this digital world,
data, and the insights it provides, is our customers’ most
strategic asset. It is increasingly distributed across every
part of their organization and ecosystem. Their ability to
secure, aggregate, automate, and analyze the data, at
speed, will ultimately dene their success. Customers are
adopting entirely new IT architectures and organizational
structures to capture this opportunity, and we believe only
Cisco, and only the network, can deliver the highly secure,
highly distributed, and intelligent infrastructure and solutions
required in today’s dynamic, digital world.
As we reect on this past year, we are pleased with how
we executed on both our business and nancial strategy
and how we are innovating what we build and how we go to
market to lead our customers in their digital transitions.
Revenue for scal 2015 increased 4% year over year to a
record $49.2 billion. The rapid adoption of our subscription-
based and software oerings is driving more predictable,
recurring revenue streams across the business. We
succeeded in driving growth and expanding our margins,
while growing our prots more quickly than revenues and
generating strong cash ows.
We remain highly focused on creating value through
ongoing expense management and returning capital to you,
our shareholders. For scal 2015, our capital returned to
shareholders totaled $8.3 billion, comprising $4.2 billion in
share buybacks and $4.1 billion in dividends. We are rmly
committed to continuing our capital allocation strategy
of returning a minimum of 50% of our free cash ow to
shareholders annually.
A Winning Dierentiated Strategy
Our strong nancial performance and our market leadership
in most areas clearly show that our vision and strategy are
working. Our dierentiation comes from our ability to deliver
integrated architectures at scale, with speed and with
security. These architectures combine multiple industry-
leading technologies, services, and software with unique
go-to-market models and partnerships. We bring these
architectures to market in solutions that deliver business
outcomes to our customers. In our view, this architectural
approach allows us to deliver value greater than the sum
of the parts and is enabling us to pull away from the
competition and gain wallet and market share.
We believe that an architectural approach is essential when
it comes to tackling our customers’ top concern: security.
As everything in their world becomes digital, our customers
want a player who can step up to be their trusted partner
across the board. We believe no one is better positioned
than Cisco because, in our view, the only way to protect
enterprises is via the network. Our strategy in security
is to embed threat-centric security everywhere across
the extended network. We are also building a substantial
software subscription business in security, based on our
Sourcere technology, with software accounting for 42% of
our total security revenue in scal 2015.
Collaboration is another business that is demonstrating
our software progress through strong growth in deferred
revenue. Two years since we decided to overhaul our
collaboration portfolio with a new generation of products,
we achieved year-over-year product deferred revenue
growth of over 20% in the fourth quarter, on the strength
of our subscription and software-as-a-service businesses.
We are seeing even stronger momentum from Meraki,
which exited scal 2015 with an annualized revenue run
rate of approximately $740 million, based on fourth quarter
performance, as customers adopt new cloud-based
consumption models.
In scal 2015, we started to see good early traction with
our new Cisco ONE Software bundles. We are seeing these
oerings drive strategic, multiyear customer relationships
with enterprise license agreements, as well as an increase
in customer infrastructure spend. We are also seeing the
expansion of our total addressable market to encompass
data and analytics.