UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January ~~25, 2020~~23, 2021



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number ~~0-18225~~001-39940

CISCO SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



~~California~~Delaware						77-0059951
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

170 West Tasman Drive

San Jose,, California95134

(Address of principal executive office and zip code)

(~~408~~) (408) 526-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report.)

_____________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CSCO	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~

☒

~~Accelerated filer~~

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of the registrant’s common stock outstanding as of February ~~13, 2020: 4,240,880,161~~11, 2021: 4,221,785,547

____________________________________

Table of Contents

Cisco Systems, Inc.

Form 10-Q for the Quarter Ended January ~~25, 2020~~23, 2021

INDEX

Page

~~Page~~

Part I

Financial Information

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets at January ~~25, 2020~~23, 2021 and July ~~27, 2019~~25, 2020

Consolidated Statements of Operations for the Three and Six Months Ended January ~~25, 2020~~23, 2021 and January ~~26, 2019~~25, 2020

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended January ~~25, 2020~~23, 2021 and January ~~26, 2019~~25, 2020

Consolidated Statements of Cash Flows for the Six Months Ended January ~~25, 2020~~23, 2021 and January ~~26, 2019~~25, 2020

Consolidated Statements of Equity for the Three and Six Months Ended January ~~25, 2020~~23, 2021 and January ~~26, 2019~~25, 2020

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4341

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

6563

Item 4.

Controls and Procedures

Part II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

8479

Item 3.

Defaults Upon Senior Securities

8479

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I. FINANCIAL INFORMATION



Item 1.			Financial Statements (Unaudited)

CISCO SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)


	January 25, 2020			July 27, 2019				January 23, 2021		July 25, 2020
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	8,475		$	11,750		Cash and cash equivalents	$	11,793	$	11,809
Investments	18,587			21,663			Investments	18,795		17,610
Accounts receivable, net of allowance for doubtful accounts of $112 at January 25, 2020 and $136 at July 27, 2019	4,330			5,491
Accounts receivable, net of allowance for doubtful accounts of $102 at January 23, 2021 and $143 at July 25, 2020							Accounts receivable, net of allowance for doubtful accounts of $102 at January 23, 2021 and $143 at July 25, 2020	4,307		5,472
Inventories	1,353			1,383			Inventories	1,436		1,282
Financing receivables, net	4,827			5,095			Financing receivables, net	5,027		5,051
Other current assets	2,481			2,373			Other current assets	2,553		2,349
Total current assets	40,053			47,755			Total current assets	43,911		43,573
Property and equipment, net	2,621			2,789			Property and equipment, net	2,386		2,453
Financing receivables, net	4,757			4,958			Financing receivables, net	5,100		5,714
Goodwill	33,612			33,529			Goodwill	34,733		33,806
Purchased intangible assets, net	1,906			2,201			Purchased intangible assets, net	1,462		1,576
Deferred tax assets	3,896			4,065			Deferred tax assets	4,109		3,990
Other assets	3,581			2,496			Other assets	3,900		3,741
TOTAL ASSETS	$	90,426		$	97,793		TOTAL ASSETS	$	95,601	$	94,853
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:							Current liabilities:
Short-term debt	$	1,499		$	10,191		Short-term debt	$	5,000	$	3,005
Accounts payable	1,935			2,059			Accounts payable	1,867		2,218
Income taxes payable	819			1,149			Income taxes payable	763		839
Accrued compensation	2,690			3,221			Accrued compensation	3,295		3,122
Deferred revenue	10,638			10,668			Deferred revenue	11,552		11,406
Other current liabilities	4,507			4,424			Other current liabilities	4,791		4,741
Total current liabilities	22,088			31,712			Total current liabilities	27,268		25,331
Long-term debt	14,494			14,475			Long-term debt	9,554		11,578
Income taxes payable	8,227			8,927			Income taxes payable	8,084		8,837
Deferred revenue	8,048			7,799			Deferred revenue	9,294		9,040
Other long-term liabilities	2,036			1,309			Other long-term liabilities	2,280		2,147
Total liabilities	54,893			64,222			Total liabilities	56,480		56,933
Commitments and contingencies (Note 14)							Commitments and contingencies (Note 14)	0		0
Equity:							Equity:
Cisco shareholders’ equity:							Cisco shareholders’ equity:
Preferred stock, no par value: 5 shares authorized; none issued and outstanding	—			—
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,241 and 4,250 shares issued and outstanding at January 25, 2020 and July 27, 2019, respectively	40,617			40,266
Preferred stock, no par value: 5 shares authorized; NaN issued and outstanding							Preferred stock, no par value: 5 shares authorized; NaN issued and outstanding	0		0
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,221 and 4,237 shares issued and outstanding at January 23, 2021 and July 25, 2020, respectively							Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,221 and 4,237 shares issued and outstanding at January 23, 2021 and July 25, 2020, respectively	41,690		41,202
Accumulated deficit	(4,384		)	(5,903		)	Accumulated deficit	(2,351)		(2,763)
Accumulated other comprehensive loss	(700		)	(792		)	Accumulated other comprehensive loss	(218)		(519)
Total equity	35,533			33,571			Total equity	39,121		37,920
TOTAL LIABILITIES AND EQUITY	$	90,426		$	97,793		TOTAL LIABILITIES AND EQUITY	$	95,601	$	94,853

See Notes to Consolidated Financial Statements.

Table of Contents

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per-share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
	January 25, 2020			January 26, 2019			January 25, 2020			January 26, 2019				January 23, 2021		January 25, 2020		January 23, 2021		January 25, 2020
REVENUE:													REVENUE:
Product	$	8,671		$	9,273		$	18,549		$	19,163		Product	$	8,572	$	8,671	$	17,159	$	18,549
Service	3,334			3,173			6,615			6,355			Service	3,388		3,334		6,730		6,615
Total revenue	12,005			12,446			25,164			25,518			Total revenue	11,960		12,005		23,889		25,164
COST OF SALES:													COST OF SALES:
Product	3,126			3,614			6,650			7,413			Product	3,044		3,126		6,250		6,650
Service	1,115			1,059			2,286			2,186			Service	1,132		1,115		2,274		2,286
Total cost of sales	4,241			4,673			8,936			9,599			Total cost of sales	4,176		4,241		8,524		8,936
GROSS MARGIN	7,764			7,773			16,228			15,919			GROSS MARGIN	7,784		7,764		15,365		16,228
OPERATING EXPENSES:													OPERATING EXPENSES:
Research and development	1,570			1,557			3,236			3,165			Research and development	1,527		1,570		3,139		3,236
Sales and marketing	2,279			2,271			4,759			4,681			Sales and marketing	2,277		2,279		4,494		4,759
General and administrative	455			509			974			720			General and administrative	484		455		1,028		974
Amortization of purchased intangible assets	38			39			74			73			Amortization of purchased intangible assets	39		38		75		74
Restructuring and other charges	42			186			226			264			Restructuring and other charges	234		42		836		226
Total operating expenses	4,384			4,562			9,269			8,903			Total operating expenses	4,561		4,384		9,572		9,269
OPERATING INCOME	3,380			3,211			6,959			7,016			OPERATING INCOME	3,223		3,380		5,793		6,959
Interest income	242			328			515			672			Interest income	161		242		335		515
Interest expense	(158		)	(223		)	(336		)	(444		)	Interest expense	(113)		(158)		(225)		(336)
Other income (loss), net	70			27			82			8			Other income (loss), net	(16)		70		33		82
Interest and other income (loss), net	154			132			261			236			Interest and other income (loss), net	32		154		143		261
INCOME BEFORE PROVISION FOR INCOME TAXES	3,534			3,343			7,220			7,252			INCOME BEFORE PROVISION FOR INCOME TAXES	3,255		3,534		5,936		7,220
Provision for income taxes	656			521			1,416			881			Provision for income taxes	710		656		1,217		1,416
NET INCOME	$	2,878		$	2,822		$	5,804		$	6,371		NET INCOME	$	2,545	$	2,878	$	4,719	$	5,804

Net income per share:													Net income per share:
Basic	$	0.68		$	0.63		$	1.37		$	1.41		Basic	$	0.60	$	0.68	$	1.12	$	1.37
Diluted	$	0.68		$	0.63		$	1.36		$	1.40		Diluted	$	0.60	$	0.68	$	1.11	$	1.36
Shares used in per-share calculation:													Shares used in per-share calculation:
Basic	4,242			4,470			4,244			4,517			Basic	4,223		4,242		4,227		4,244
Diluted	4,260			4,505			4,265			4,557			Diluted	4,234		4,260		4,239		4,265

See Notes to Consolidated Financial Statements.

Table of Contents

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

Three Months Ended Six Months Ended
January 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019
Net income $ 2,878
$ 2,822
$ 5,804
$ 6,371
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $(15) and $(29) for the second quarter and first six months of fiscal 2020, respectively, and $(12) and $1 for the corresponding periods of fiscal 2019, respectively 66
82
139
87
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $7 and $12 for the second quarter and first six months of fiscal 2020, respectively, and $(1) for each of the corresponding periods of fiscal 2019, respectively (4 ) 4
(9 ) 10

62
86
130
97
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $0 and $1 for the second quarter and first six months of fiscal 2020, respectively, and $1 and $2 for the corresponding periods of fiscal 2019, respectively 1
(4 ) 1
(7 )
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $0 for each of the respective periods 2
(1 ) 2
(1 )

3
(5 ) 3
(8 )
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $(1) for each of the second quarter and first six months of fiscal 2020, respectively, and $0 and $(1) for the corresponding periods of fiscal 2019, respectively 50
27
(41 ) (182 )
Other comprehensive income (loss) 115
108
92
(93 )
Comprehensive income $ 2,993
$ 2,930
$ 5,896
$ 6,278


	Three Months Ended				Six Months Ended
	January 23, 2021		January 25, 2020		January 23, 2021		January 25, 2020
Net income	$	2,545	$	2,878	$	4,719	$	5,804
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $0 and $17 for the second quarter and first six months of fiscal 2021, respectively, and $(15) and $(29) for the corresponding periods of fiscal 2020, respectively	6		66		(18)		139
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $2 and $7 for the second quarter and first six months of fiscal 2021, respectively and $7 and $12 for the corresponding periods of fiscal 2020, respectively	(7)		(4)		(17)		(9)
	(1)		62		(35)		130
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $1 for each of the second quarter and first six months of fiscal 2021, and $0 and $1 for the corresponding periods of fiscal 2020, respectively	(2)		1		(4)		1
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $0 and $1 for the second quarter and first six months of fiscal 2021, respectively, and $0 for each of the corresponding periods of fiscal 2020	(3)		2		(4)		2
	(5)		3		(8)		3
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $(2) and $(3) for the second quarter and first six months of fiscal 2021, respectively, and $(1) for each of the corresponding periods of fiscal 2020	235		50		344		(41)
Other comprehensive income	229		115		301		92
Comprehensive income	$	2,774	$	2,993	$	5,020	$	5,896

See Notes to Consolidated Financial Statements.

Table of Contents

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Six Months Ended
	January 23, 2021		January 25, 2020
Cash flows from operating activities:
Net income	$	4,719	$	5,804
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other	887		918
Share-based compensation expense	874		779
Provision (benefit) for receivables	(10)		46
Deferred income taxes	(91)		128
(Gains) losses on divestitures, investments and other, net	(86)		(162)
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable	1,245		1,084
Inventories	(145)		25
Financing receivables	748		408
Other assets	(212)		130
Accounts payable	(358)		(126)
Income taxes, net	(836)		(1,007)
Accrued compensation	125		(521)
Deferred revenue	226		236
Other liabilities	(16)		(355)
Net cash provided by operating activities	7,070		7,387
Cash flows from investing activities:
Purchases of investments	(6,025)		(4,250)
Proceeds from sales of investments	1,374		3,410
Proceeds from maturities of investments	3,373		4,044
Acquisitions and divestitures	(860)		(163)
Purchases of investments in privately held companies	(95)		(97)
Return of investments in privately held companies	58		91
Acquisition of property and equipment	(358)		(391)
Proceeds from sales of property and equipment	9		131
Other	(4)		(10)
Net cash (used in) provided by investing activities	(2,528)		2,765
Cash flows from financing activities:
Issuances of common stock	306		334
Repurchases of common stock—repurchase program	(1,569)		(1,648)
Shares repurchased for tax withholdings on vesting of restricted stock units	(317)		(437)
Short-term borrowings, original maturities of 90 days or less, net	0		(3,470)
Repayments of debt	0		(5,220)
Dividends paid	(3,041)		(2,972)
Other	70		(12)
Net cash used in financing activities	(4,551)		(13,425)
Net decrease in cash, cash equivalents, and restricted cash	(9)		(3,273)
Cash, cash equivalents, and restricted cash, beginning of period	11,812		11,772
Cash, cash equivalents, and restricted cash, end of period	$	11,803	$	8,499

Supplemental cash flow information:
Cash paid for interest	$	220	$	349
Cash paid for income taxes, net	$	2,142	$	2,295

Six Months Ended

January 25, 2020 January 26, 2019
Cash flows from operating activities:
Net income $ 5,804
$ 6,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other 918
952
Share-based compensation expense 779
792
Provision for receivables 46
30
Deferred income taxes 128
(257 )
(Gains) losses on divestitures, investments and other, net (162 ) (77 )
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

Accounts receivable 1,084
1,613
Inventories 25
(203 )
Financing receivables 408
161
Other assets 130
(652 )
Accounts payable (126 ) (296 )
Income taxes, net (1,007 ) (830 )
Accrued compensation (521 ) (339 )
Deferred revenue 236
207
Other liabilities (355 ) 88
Net cash provided by operating activities 7,387
7,560
Cash flows from investing activities:
Purchases of investments (4,250 ) (677 )
Proceeds from sales of investments 3,410
3,055
Proceeds from maturities of investments 4,044
6,263
Acquisitions and divestitures (163 ) (1,599 )
Purchases of investments in privately held companies (97 ) (68 )
Return of investments in privately held companies 91
43
Acquisition of property and equipment (391 ) (473 )
Proceeds from sales of property and equipment 131
10
Other (10 ) (12 )
Net cash provided by investing activities 2,765
6,542
Cash flows from financing activities:
Issuances of common stock 334
312
Repurchases of common stock—repurchase program
(1,648 ) (10,062 )
Shares repurchased for tax withholdings on vesting of restricted stock units (437 ) (514 )
Short-term borrowings, original maturities of 90 days or less, net (3,470 ) —
Repayments of debt (5,220 ) —
Dividends paid (2,972 ) (2,970 )
Other (12 ) 18
Net cash used in financing activities (13,425 ) (13,216 )
Net (decrease) increase in cash, cash equivalents, and restricted cash (3,273 ) 886
Cash, cash equivalents, and restricted cash, beginning of period 11,772
8,993
Cash, cash equivalents, and restricted cash, end of period $ 8,499
$ 9,879

Supplemental cash flow information:
Cash paid for interest $ 349
$ 425
Cash paid for income taxes, net $ 2,295
$ 1,968

Table of Contents

CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

In the second quarter of fiscal ~~2020,~~2021, we saw improving business momentum and delivered strong total gross margin in a challenging environment with the COVID-19 pandemic. As customers have accelerated their digitization and ~~growth~~cloud investments in ~~earnings per share. We remain focused on accelerating innovation across our portfolio, and we believe that~~the wake of the pandemic, we have ~~made continued progress~~been focusing on ~~our strategic priorities.~~executing and innovating to support and assist that transition. Total revenue was flat compared with the second quarter of fiscal 2020. Our product revenue declined in Infrastructure Platforms ~~and Applications,~~ partially offset by growth in Security, and we continued to make progress in the transition of our business model to increased software and subscriptions. We remain focused on accelerating innovation across our portfolio, and we believe that we have made continued progress on our strategic priorities. We continue to operate in a challenging macroeconomic and highly competitive environment. During the second quarter of fiscal 2020, we experienced continuing weakness in the service provider market and emerging countries, and we expect ongoing uncertainty in these markets. We also continued to see a more broad-based weakening in the global macroeconomic environment during the quarter which impacted our enterprise and commercial markets. While the overall environment remains uncertain, we continue to aggressively invest in priority areas with the objective of driving profitable growth over the long term.

~~Total revenue decreased by 4% compared with the second quarter of fiscal 2019.~~ Within total revenue, product revenue decreased by 6%1% and service revenue increased by 5%2%. Total gross margin increased by ~~2.2~~0.4 percentage points, driven by favorable product mix and to a lesser extent, productivity improvements, ~~and product mix,~~ partially offset by ~~unfavorable~~pricing erosion. As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, was flat. Operating income as a percentage of revenue decreased by 1.3 percentage points. We incurred restructuring and other charges of $234 million in the second quarter of fiscal 2021, which resulted in a decrease of 12% in net income and a decrease of 12% in diluted earnings per share.

In terms of our geographic segments, revenue from the Americas decreased $44 million, EMEA revenue increased by $73 million and APJC revenue decreased by $75 million. We continue to experience continuing weakness in emerging countries, and we expect ongoing uncertainty in this market. The “BRICM” countries experienced a product revenue decline of 13% in the aggregate, driven by decreased product revenue across each of the BRICM countries.

From a customer market standpoint, we experienced product revenue declines in the enterprise, service provider and commercial markets, partially offset by product revenue growth in the public sector market. We are seeing improvement in business momentum in the service provider, public sector and commercial markets.

From a product category perspective, the product revenue decrease of 1% was driven by declines in revenue in Infrastructure Platforms of 3%, partially offset by a product revenue increase in Security of 10%. Applications was flat.

Table of Contents

CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Six Months Ended January 23, 2021 Compared with Six Months Ended January 25, 2020

Total revenue decreased 5%, with product revenue decreasing 7% and service revenue increasing 2%. Total gross margin decreased by 0.2 percentage points due to pricing erosion, and to a lesser extent, lower productivity benefits, partially offset by favorable impacts from ~~pricing.~~product mix. As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses collectively increased by ~~1.1~~0.7 percentage points. Operating income as a percentage of revenue ~~increased~~decreased by ~~2.4~~3.5 percentage points. ~~Diluted earnings per share increased by 8%, driven by~~We incurred restructuring and other charges of $836 millionin the first six months of fiscal 2021, which resulted in a ~~2% increase~~decrease of 19% in net income and a decrease of 18% in diluted ~~share count of 245 million shares.~~earnings per share.

~~In terms~~COVID-19 Pandemic Response Summary

During this extraordinary time, our priority has been supporting our employees, customers, partners and communities, while positioning Cisco for the future. The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations. The actions we have taken and are taking include:

Employees

•Most of our ~~geographic segments, revenue~~global workforce working from home.

•Seamless transition to work from home with a long-standing flexible work policy, and we build the ~~Americas decreased $339 million, EMEA revenue decreased by $89 million~~technologies that allow organizations to stay connected, secure and ~~APJC revenue decreased by $13 million. The “BRICM” countries experienced a product revenue decline of 28%~~productive.

•For the remainder who must be in the ~~aggregate, driven~~office to perform their roles, we are focused on their health and safety, and are taking all of the necessary precautions.

Customer and Partners

•Provided a variety of free offers and trials for our Webex and security technologies as they dramatically shifted entire workforces to be remote.

Communities

•Committed significant funds to support both global and local pandemic response efforts.

•Provided technology and financial support for non-profits, first responders, and governments.

•Donated personal protective equipment to hospital workers including N95 masks and face shields 3D-printed by ~~decreased product revenue in~~Cisco volunteers around the ~~emerging countries of Mexico, China, India and Brazil.~~

From a customer market standpoint, we experienced product revenue declines across all customer segments. During the second quarter of fiscal 2020, we saw a decline in business momentum in the enterprise and commercial markets, which we believe was significantly related to weakness in the global macroeconomic environment.

From a product category perspective, the product revenue decrease of 6% was driven by declines in revenue in Infrastructure Platforms and Applications each of 8%, and these declines were partially offset by a product revenue increase in Security of 9%.

world.

Table of Contents

CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

~~Six Months Ended January 25, 2020 Compared with Six Months Ended January 26, 2019~~

Total revenue decreased 1%, with product revenue decreasing 3% and service revenue increasing 4%. Total gross margin increased by 2.1 percentage points due to productivity benefits and product mix, partially offset by unfavorable impacts from pricing. As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses collectively increased by 2.0 percentage points due to higher general and administrative expenses. General and administrative expenses increased due to the impact of the benefit from the $400 million litigation settlement with Arista Networks, Inc. (“Arista”) in the first quarter of fiscal 2019. Operating income as a percentage of revenue increased by 0.2 percentage points.

Strategy and Priorities

As our customers add billions of new connections to their enterprises, and as more applications move to a multicloud environment, the network ~~continues~~becomes even more critical. Our customers are navigating change at an unprecedented pace and our mission is to ~~be extremely critical.~~inspire new possibilities for them by helping transform their infrastructure, expand applications and analytics, address their security needs, and empower their teams. We believe that our customers are looking for intent-based networks that provide meaningful business value through automation, security, and analytics across private, hybrid, and multicloud environments. Our vision is to deliver highly secure, software-defined, automated and intelligent platforms for our customers. ~~Our strategic priorities include the following: accelerating our pace of innovation, increasing the value of the network, and transforming our business model.~~

For additional discussion of our strategy and priorities, see Item 1. Business in our Annual Report on Form 10-K for the year ended July ~~27, 2019.~~25, 2020.

Other Key Financial Measures

The following is a summary of our other key financial measures for the second quarter of fiscal ~~2020~~2021 (in millions):


	January 23, 2021		July 25, 2020
Cash and cash equivalents and investments	$	30,588	$	29,419
Deferred revenue	$	20,846	$	20,446
Inventories	$	1,436	$	1,282


	Six Months Ended
	January 23, 2021		January 25, 2020
Cash provided by operating activities	$	7,070	$	7,387
Repurchases of common stock—stock repurchase program	$	1,601	$	1,638
Dividends paid	$	3,041	$	2,972

January 25,
2020 July 27,
2019
Cash and cash equivalents and investments $ 27,062
$ 33,413
Deferred revenue $ 18,686
$ 18,467
Inventories $ 1,353
$ 1,383

Six Months Ended
January 25,
2020 January 26,
2019
Cash provided by operating activities $ 7,387
$ 7,560
Repurchases of common stock—stock repurchase program $ 1,638
$ 10,042
Dividends $ 2,972
$ 2,970

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended July ~~27, 2019,~~25, 2020, as updated as applicable in Note 2 to the Consolidated Financial Statements herein, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.

The inputs into certain of our judgments, assumptions, and estimates considered the economic implications of the COVID-19 pandemic on our critical and significant accounting estimates. The COVID-19 pandemic did not have a material impact on our significant judgments, assumptions and estimates that are reflected in our results for the second quarter and first six months of fiscal 2021. These estimates are listed in our Annual Report on Form 10-K for the year ending July 25, 2020, and include: goodwill and identified purchased intangible assets and income taxes, among other items. The actual results that we experience may differ materially from our estimates. As the COVID-19 pandemic continues to develop, many of our estimates could require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve our estimates may change materially in future periods.

Revenue Recognition

We enter into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. As a result, our contracts may contain multiple performance obligations. We determine whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and SaaS as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where we deliver hardware or software, we are typically the principal and we record revenue and costs of goods sold on a gross basis.

We recognize revenue upon transfer of control of promised goods or services in a contract with a customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once title and risk of loss has transferred to the customer. Transfer of control can also occur over time for software maintenance and services as the customer receives the benefit over the contract term. Our hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS arrangements do not include the right for the customer to take possession of the software during the term, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On our product sales, we record consideration from shipping and handling on a gross basis within net product sales. We record our revenue net of any associated sales taxes.

Revenue is allocated among these performance obligations in a manner that reflects the consideration that we expect to be entitled to for the promised goods or services based on standalone selling prices (SSP). SSP is estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of a product or service when we sell the goods separately in similar circumstances and to similar customers. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions and other observable inputs.

We apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration includes potential contractual ~~potential~~ penalties and various rebate, cooperative marketing and other incentive programs that we offer to our distributors, channel partners and customers. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. We also consider the customers' right of return in determining the transaction price, where applicable. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.

See Note 3 to the Consolidated Financial Statements for more details.

4645

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

~~Allowances for Receivables and Sales Returns~~

~~The allowances for receivables were as follows (in millions, except percentages):~~

January 25,
2020 July 27,
2019
Allowance for doubtful accounts $ 112
$ 136
Percentage of gross accounts receivable 2.5 % 2.4 %
Allowance for credit loss—lease receivables $ 42
$ 46
Percentage of gross lease receivables⁽¹⁾
1.8 % 1.8 %
Allowance for credit loss—loan receivables $ 95
$ 71
Percentage of gross loan receivables 1.8 % 1.3 %

⁽¹⁾~~Calculated as allowance for credit loss on lease receivables as a percentage of gross lease receivables and residual value before unearned income.~~

The allowance for doubtful accounts is based on our assessment of the collectibility of customer accounts. We regularly review the adequacy of these allowances by considering internal factors such as historical experience, credit quality and age of the receivable balances as well as external factors such as economic conditions that may affect a customer’s ability to pay as well as historical and expected default frequency rates, which are published by major third-party credit-rating agencies and are updated on a quarterly basis. We also consider the concentration of receivables outstanding with a particular customer in assessing the adequacy of our allowances for doubtful accounts. If a major customer’s creditworthiness deteriorates, if actual defaults are higher than our historical experience, or if other circumstances arise, our estimates of the recoverability of amounts due to us could be overstated, and additional allowances could be required, which could have an adverse impact on our operating results.

The allowance for credit loss on financing receivables is also based on the assessment of collectibility of customer accounts. We regularly review the adequacy of the credit allowances determined either on an individual or a collective basis. When evaluating the financing receivables on an individual basis, we consider historical experience, credit quality and age of receivable balances, and economic conditions that may affect a customer’s ability to pay. When evaluating financing receivables on a collective basis, we use expected default frequency rates published by a major third-party credit-rating agency as well as our own historical loss rate in the event of default, while also systematically giving effect to economic conditions, concentration of risk and correlation. Determining expected default frequency rates and loss factors associated with internal credit risk ratings, as well as assessing factors such as economic conditions, concentration of risk, and correlation, are complex and subjective. Our ongoing consideration of all these factors could result in an increase in our allowance for credit loss in the future, which could adversely affect our operating results. Both accounts receivable and financing receivables are charged off at the point when they are considered uncollectible.

A reserve for future sales returns is established based on historical trends in product return rates. The reserve for future sales returns as of January 25, 2020 and July 27, 2019 was $87 million and $84 million, respectively, and was recorded as a reduction of our accounts receivable and revenue. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.

~~Inventory Valuation and Liability for Purchase Commitments with Contract Manufacturers and Suppliers~~

Inventory is written down based on excess and obsolete inventories, determined primarily by future demand forecasts. Inventory write-downs are measured as the difference between the cost of the inventory and market, based upon assumptions about future demand, and are charged to the provision for inventory, which is a component of our cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

We record a liability for firm, noncancelable, and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory.

Our provision for inventory was $30 million and $23 million for the first six months of fiscal 2020 and 2019, respectively. The provision for the liability related to purchase commitments with contract manufacturers and suppliers was $67 million and $48 million for the first six months of fiscal 2020 and 2019, respectively. If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements, we could be required to increase our inventory write-downs, and our liability for purchase commitments with contract manufacturers and suppliers, and accordingly our profitability, could be adversely affected. We regularly evaluate our exposure for inventory write-downs and the adequacy of our liability for purchase commitments.

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~~CISCO SYSTEMS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)~~

Loss Contingencies ~~and Product Warranties~~

We are subject to the possibility of various losses arising in the ordinary course of business. We consider the likelihood of impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate information available to us to determine whether such accruals should be made or adjusted and whether new accruals are required.

Our products are generally covered by a warranty for periods ranging from 90 days to five years, and for some products we provide a limited lifetime warranty. We accrue for warranty costs as part of our cost of sales based on associated material costs, technical support labor costs, and associated overhead. Material cost is estimated based primarily upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. Technical support labor cost is estimated based primarily upon historical trends in the rate of customer cases and the cost to support the customer cases within the warranty period. Overhead cost is applied based on estimated time to support warranty activities.

If we experience an increase in warranty claims compared with our historical experience, or if the cost of servicing warranty claims is greater than expected, our profitability could be adversely affected.

~~Impairment of Investments~~

We recognize an impairment charge when the declines in the fair values of our available-for-sale debt investments below their cost basis are judged to be other than temporary. The ultimate value realized on these securities, to the extent unhedged, is subject to market price volatility until they are sold.

If the fair value of a debt security is less than its amortized cost, we assess whether the impairment is other than temporary. An impairment is considered other than temporary if (i) we have the intent to sell the security, (ii) it is more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis, or (iii) we do not expect to recover the entire amortized cost of the security. If an impairment is considered other than temporary based on (i) or (ii) described in the prior sentence, the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other than temporary based on condition (iii), the amount representing credit loss, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income (OCI). In estimating the amount and timing of cash flows expected to be collected, we consider all available information, including past events, current conditions, the remaining payment terms of the security, the financial condition of the issuer, expected defaults, and the value of underlying collateral.

We hold non-marketable equity and other investments, some of which are in startup or development stage companies. We monitor these investments for events or circumstances indicative of potential impairment, and we make appropriate reductions in carrying values if we determine that an impairment charge is required, based primarily on the financial condition and near-term prospects of these companies. These investments are inherently risky because the markets for the technologies or products these companies are developing are typically in the early stages and may never materialize.

Goodwill and Purchased Intangible Asset Impairments

Our methodology for allocating the purchase price relating to purchase acquisitions is determined through established valuation techniques. Goodwill represents a residual value as of the acquisition date, which in most cases results in measuring goodwill as an excess of the purchase consideration transferred plus the fair value of any noncontrolling interest in the acquired company over the fair value of net assets acquired, including contingent consideration. We perform goodwill impairment tests on an annual basis in the fourth fiscal quarter and between annual tests in certain circumstances for each reporting unit. The assessment of fair value for goodwill and purchased intangible assets is based on factors that market participants would use in an orderly transaction in accordance with the new accounting guidance for the fair value measurement of nonfinancial assets.

In response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill. There was no impairment of goodwill in each of the first six months of fiscal ~~2020~~2021 and ~~2019.~~

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~~CISCO SYSTEMS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)~~

2020.

The fair value of acquired technology and patents, as well as acquired technology under development, is determined at acquisition date primarily using the income approach, which discounts expected future cash flows to present value. The discount rates used in the present value calculations are typically derived from a weighted-average cost of capital analysis and then adjusted to reflect risks inherent in the development lifecycle as appropriate. We consider the pricing model for products related to these acquisitions to be standard within the high-technology communications industry, and the applicable discount rates represent the rates that market participants would use for valuation of such intangible assets.

We make judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances indicate that an impairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. We review indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Assumptions and estimates about future values and remaining useful lives of our purchased intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

Our ongoing consideration of all the factors described previously could result in impairment charges in the future, which could adversely affect our net income.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rates differ from the statutory rate, primarily due to the tax impact of state taxes, foreign operations, R&D tax credits, ~~domestic manufacturing deductions,~~ foreign-derived intangible income deductions, global intangible low-taxed income, tax audit settlements, nondeductible compensation, international realignments, and transfer pricing adjustments. Our effective tax rate was ~~18.6%~~21.8% and ~~15.6%~~18.6% in the second quarter of fiscal 2021 and 2020, respectively, and ~~2019, respectively. Our effective tax rate was~~20.5% and 19.6% ~~and 12.1%~~ in the first six months of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively.

Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties.

Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

Our provision for income taxes is subject to volatility and could be adversely impacted by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes to ~~domestic manufacturing deduction,~~ foreign-derived intangible income deduction, global intangible low-tax income and base erosion and anti-abuse tax laws, regulations, or interpretations thereof; by expiration of or lapses in tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax credit rules. Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of 3637 countries, including the United States, has made changes to numerous long-standing tax principles. There can be no assurance that these changes, once adopted by countries, will not have an adverse impact on our provision for income taxes. AsFurther, as a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries iswas subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

RESULTS OF OPERATIONS

Revenue

The following table presents the breakdown of revenue between product and service (in millions, except percentages):


	Three Months Ended											Six Months Ended												Three Months Ended										Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent		January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent			January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent		January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent
Revenue:																							Revenue:
Product	$	8,671		$	9,273		$	(602	)	(6	)%	$	18,549		$	19,163		$	(614	)	(3	)%	Product	$	8,572		$	8,671		$	(99)	(1)	%	$	17,159		$	18,549		$	(1,390)	(7)	%
Percentage of revenue	72.2		%	74.5		%						73.7		%	75.1		%						Percentage of revenue	71.7		%	72.2		%					71.8		%	73.7		%
Service	3,334			3,173			161			5	%	6,615			6,355			260			4	%	Service	3,388			3,334			54		2	%	6,730			6,615			115		2	%
Percentage of revenue	27.8		%	25.5		%						26.3		%	24.9		%						Percentage of revenue	28.3		%	27.8		%					28.2		%	26.3		%
Total	$	12,005		$	12,446		$	(441	)	(4	)%	$	25,164		$	25,518		$	(354	)	(1	)%	Total	$	11,960		$	12,005		$	(45)	—	%	$	23,889		$	25,164		$	(1,275)	(5)	%

We manage our business primarily on a geographic basis, organized into three geographic segments. Our revenue, which includes product and service for each segment, is summarized in the following table (in millions, except percentages):


	Three Months Ended											Six Months Ended												Three Months Ended										Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent		January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent			January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent		January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent
Revenue:																							Revenue:
Americas	$	7,013		$	7,352		$	(339	)	(5	)%	$	14,990		$	15,103		$	(113	)	(1	)%	Americas	$	6,969		$	7,013		$	(44)	(1)	%	$	14,168		$	14,990		$	(822)	(5)	%
Percentage of revenue	58.4		%	59.1		%						59.6		%	59.2		%						Percentage of revenue	58.3		%	58.4		%					59.3		%	59.6		%
EMEA	3,134			3,223			(89		)	(3	)%	6,417			6,447			(30		)	—	%	EMEA	3,207			3,134			73		2	%	6,171			6,417			(246)		(4)	%
Percentage of revenue	26.1		%	25.9		%						25.5		%	25.3		%						Percentage of revenue	26.8		%	26.1		%					25.8		%	25.5		%
APJC	1,859			1,872			(13		)	(1	)%	3,758			3,968			(210		)	(5	)%	APJC	1,784			1,859			(75)		(4)	%	3,551			3,758			(207)		(6)	%
Percentage of revenue	15.5		%	15.0		%						14.9		%	15.5		%						Percentage of revenue	14.9		%	15.5		%					14.9		%	14.9		%
Total	$	12,005		$	12,446		$	(441	)	(4	)%	$	25,164		$	25,518		$	(354	)	(1	)%	Total	$	11,960		$	12,005		$	(45)	—	%	$	23,889		$	25,164		$	(1,275)	(5)	%

Amounts may not sum and percentages may not recalculate due to rounding.

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Total revenue ~~decreased by 4%.~~was flat. Product revenue decreased by 6%1% and service revenue increased by 5%2%. Our total revenue reflected declines ~~across each of our geographic segments.~~in the Americas and APJC segments while revenue grew in the EMEA segment. Product revenue for the emerging countries of BRICM, in the aggregate, experienced a ~~28%~~13% product revenue decline, with decreases in ~~Mexico, India, China and Brazil.~~each of these countries.

In addition to the impact of macroeconomic factors, including ~~a reduced~~the IT spending environment and ~~reductions in~~the level of spending by government entities, revenue by segment in a particular period may be significantly impacted by several factors related to revenue recognition, including the complexity of transactions such as multiple performance obligations; the mix of financing arrangements provided to channel partners and customers; and final acceptance of the product, system, or solution, among other factors. In addition, certain customers tend to make large and sporadic purchases, and the revenue related to these transactions may also be affected by the timing of revenue recognition, which in turn would impact the revenue of the relevant segment.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Total revenue decreased by 1%5%. Product revenue decreased by 3%7% and service revenue increased by 4%2%. Our total revenue reflected declines across each of our geographic segments. Product revenue for the emerging countries of BRICM, in the aggregate, experienced a ~~29%~~21% product revenue decline, with decreases ~~primarily~~ in ~~Mexico, China, India and Brazil.~~each of these countries.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Product Revenue by Segment

The following table presents the breakdown of product revenue by segment (in millions, except percentages):


	Three Months Ended											Six Months Ended												Three Months Ended										Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent		January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent			January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent		January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent
Product revenue:																							Product revenue:
Americas	$	4,935		$	5,349		$	(414	)	(8	)%	$	10,842		$	11,060		$	(218	)	(2	)%	Americas	$	4,888		$	4,935		$	(47)	(1)	%	$	10,017		$	10,842		$	(825)	(8)	%
Percentage of product revenue	56.9		%	57.7		%						58.4		%	57.7		%						Percentage of product revenue	57.1		%	56.9		%					58.4		%	58.4		%
EMEA	2,393			2,512			(119		)	(5	)%	4,951			5,039			(88		)	(2	)%	EMEA	2,438			2,393			45		2	%	4,648			4,951			(303)		(6)	%
Percentage of product revenue	27.6		%	27.1		%						26.7		%	26.3		%						Percentage of product revenue	28.4		%	27.6		%					27.1		%	26.7		%
APJC	1,343			1,413			(70		)	(5	)%	2,757			3,064			(307		)	(10	)%	APJC	1,246			1,343			(97)		(7)	%	2,494			2,757			(263)		(10)	%
Percentage of product revenue	15.5		%	15.2		%						14.9		%	16.0		%						Percentage of product revenue	14.5		%	15.5		%					14.5		%	14.9		%
Total	$	8,671		$	9,273		$	(602	)	(6	)%	$	18,549		$	19,163		$	(614	)	(3	)%	Total	$	8,572		$	8,671		$	(99)	(1)	%	$	17,159		$	18,549		$	(1,390)	(7)	%

Amounts may not sum and percentages may not recalculate due to rounding.

Americas

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Product revenue in the Americas segment decreased by 8%1%. The product revenue decrease was ~~across all of customer segments.~~driven by declines in the enterprise and service provider markets. These declines were offset by growth in the public sector and commercial markets. From a country perspective, product revenue decreased by 16% in Mexico and 14% in Brazil, partially offset by growth in product revenue in Canada of 6%. Product revenue in the United States ~~12% in Canada, 42% in Mexico and 15% in Brazil.~~was flat.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

The decrease in product revenue in the Americas segment was driven by declines in the ~~service provider,~~enterprise, commercial and ~~enterprise~~service provider markets. The decreases were partially offset by product revenue growth in the public sector market. From a country perspective, product revenue decreased in the United States, Canada, Mexico and Brazil by 1%7%, 9%10%, ~~42%~~20% and ~~11%~~28%, respectively.

EMEA

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Product revenue in the EMEA segment ~~decreased~~increased by 5%2%, with ~~declines~~growth in the service provider, ~~enterprise~~public sector and ~~commercial~~enterprise markets partially offset by ~~growth~~a decline in the ~~public sector~~commercial market. Product revenue from emerging countries within EMEA ~~increased~~decreased by ~~3%, while~~13% and product revenue for the remainder of the EMEA segment, which primarily consists of countries in Western Europe, ~~decreased~~increased by 7%. From a country perspective, product revenue ~~decreased~~increased by 18% in Germany and 6% in France, partially offset by a decline in product revenue of 7% in the United ~~Kingdom and France by 5%, 8% and 7%, respectively.~~Kingdom.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Product revenue in the EMEA segment decreased by 2%6%, with declines in the ~~service provider,~~commercial, enterprise and ~~commercial~~public sector markets partially offset by growth in the ~~public sector~~service provider market. Product revenue from emerging countries within EMEA ~~increased~~decreased by 3%14% and product revenue for the remainder of the EMEA segment decreased by 3%. From a country perspective, product revenue declined 7%10% in the United Kingdom and 3%6% in France, partially offset by agrowth in product revenue ~~increase~~ of 1%6% in Germany.

APJC

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Product revenue in the APJC segment decreased by 5%7%, driven by declines in the ~~commercial, public sector~~service provider, enterprise and ~~enterprise~~commercial markets partially offset by growth in the ~~service provider~~public sector market. From a country perspective, product revenue decreased in Australia, India and China by 9%4%, ~~30%~~10%, and ~~38%~~9%, respectively, partially offset by a product revenue increase in Japan of ~~31% in Japan.~~3%.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Product revenue in the APJC segment decreased by 10%, with ~~a decline~~declines across each of the customer markets in this geographic segment. From a country perspective, product revenue decreased in Australia, India and China by 10%, 24% and ~~India by 12%, 35% and 34%~~19%, respectively, partially offset by a product revenue increase of ~~20%~~8% in Japan.

Product Revenue by ~~Groups of Similar Products~~Category

In addition to the primary view on a geographic basis, we also prepare financial information related to ~~groups of similar products~~product categories and customer markets for various purposes. We report our product revenue in the following categories: Infrastructure Platforms, Applications, Security, and Other Products. This aligns our product categories with our evolving business model. Prior period amounts have been reclassified to conform to the current period’s presentation.

The following table presents product revenue ~~for groups of similar products~~by category (in millions, except percentages):


	Three Months Ended									Six Months Ended										Three Months Ended								Six Months Ended
	January 25, 2020		January 26, 2019		Variance in Dollars			Variance in Percent		January 25, 2020		January 26, 2019		Variance in Dollars			Variance in Percent			January 23, 2021		January 25, 2020		Variance in Dollars		Variance in Percent		January 23, 2021		January 25, 2020		Variance in Dollars		Variance in Percent
Product revenue:																			Product revenue:
Infrastructure Platforms	$	6,528	$	7,102	$	(574	)	(8	)%	$	14,067	$	14,724	$	(657	)	(4	)%	Infrastructure Platforms	$	6,391	$	6,567	$	(176)	(3)	%	$	12,732	$	14,120	$	(1,388)	(10)	%
Applications	1,349		1,465		(116		)	(8	)%	2,847		2,884		(37		)	(1	)%	Applications	1,354		1,349		5		—	%	2,734		2,847		(113)		(4)	%
Security	748		684		64			9	%	1,563		1,354		209			15	%	Security	822		749		73		10	%	1,684		1,565		119		8	%
Other Products	46		22		24			110	%	72		200		(128		)	(64	)%	Other Products	4		7		(3)		(39)	%	9		17		(8)		(49)	%
Total	$	8,671	$	9,273	$	(602	)	(6	)%	$	18,549	$	19,163	$	(614	)	(3	)%	Total	$	8,572	$	8,671	$	(99)	(1)	%	$	17,159	$	18,549	$	(1,390)	(7)	%

Amounts may not sum and percentages may not recalculate due to rounding.

Infrastructure Platforms

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

The Infrastructure Platforms product category represents our core networking offerings related to switching, routing, wireless, and the data center. Infrastructure Platforms revenue decreased by 8%3%, or ~~$574~~$176 million. This was the product area most impacted by the COVID-19 pandemic environment. Switching revenue ~~declined~~was flat. We experienced revenue growth in ~~both campus switching and~~ data center switching driven by increased revenue from our Nexus 9000 Series. This product revenue growth was partially offset by declines in campus switching, although we had revenue growth in our intent-based networking Catalyst 9000 ~~Series and in our Nexus 9000~~ Series. We experienced a decrease in sales of routing products, ~~driven by continued weakness~~with declines primarily in the service provider market. We experienced a revenue ~~decline~~growth from wireless products ~~although we saw revenue growth in~~driven by our WiFi6 products and Meraki ~~and WiFi6 products.~~offerings. Revenue from data center declined primarily driven by ~~server products partially offset by strong growth of~~ our ~~HyperFlex~~servers products.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Revenue from the Infrastructure Platforms product category decreased 4%10%, or ~~$657 million,~~$1.4 billion, with declines across the portfolio with the exception of ~~data center.~~wireless. Switching revenue declined in both campus switching and data center switching, although we saw revenue growth in our intent-based networking Catalyst 9000 Series and Nexus 9000 Series. The decrease in routing was driven by continued weakness in the service provider ~~market. We experienced a revenue decline from wireless products, although we saw revenue growth in Meraki~~ and ~~WiFi6 products.~~enterprise markets. Revenue from data center ~~increased~~decreased driven primarily by ~~higher sales of~~ our ~~HyperFlex~~server products.

Applications

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

The Applications product category includes our collaboration offerings (unified communications, Cisco TelePresence and conferencing) as well as the Internet of Things (IoT) and AppDynamics analytics software offerings. Revenue in our Applications product category ~~decreased by 8%, or $116 million, with a decline in Unified Communications partially offset~~was flat, driven by double digit growth in ~~AppDynamics.~~Webex partially offset by declines in Unified Communications and Cisco TelePresence.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Revenue in our Applications product category decreased by 1%4%, or ~~$37~~$113 million, with declines in Unified Communications and Cisco Telepresence partially offset by double digit growth in ~~AppDynamics.~~Webex.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Security

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Revenue in our Security product category increased 9%10%, or ~~$64~~$73 million ~~driven by~~with growth across the portfolio. Our cloud security portfolio reflected strong ~~sales of~~double-digit growth and continued momentum with our ~~identity~~Duo and ~~access, advanced threat security and unified threat management products.~~Umbrella offerings.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Revenue in our Security product category increased by ~~15%~~8%, or ~~$209~~$119 million, driven by ~~higher sales of identity and access, advanced threat security, unified threat management and web security products.~~

~~Other Products~~

~~The increase~~growth in ~~revenue from our Other Products category for the second quarter of fiscal 2020 was primarily driven by an increase in revenue from~~ our cloud security portfolio reflecting growth and ~~system management products. The decrease in revenue from~~continued momentum with our ~~Other Products category for the first six months of fiscal 2020 was primarily driven by a decrease in revenue from the SPVSS business which we divested in the second quarter of fiscal 2019.~~Duo and Umbrella offerings.

Service Revenue by Segment

The following table presents the breakdown of service revenue by segment (in millions, except percentages):


	Three Months Ended										Six Months Ended											Three Months Ended										Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars		Variance in Percent		January 25, 2020			January 26, 2019			Variance in Dollars		Variance in Percent			January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent		January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent
Service revenue:																					Service revenue:
Americas	$	2,078		$	2,003		$	75	4	%	$	4,148		$	4,043		$	105	3	%	Americas	$	2,081		$	2,078		$	3	—	%	$	4,151		$	4,148		$	3	—	%
Percentage of service revenue	62.3		%	63.1		%					62.7		%	63.6		%					Percentage of service revenue	61.4		%	62.3		%					61.7		%	62.7		%
EMEA	741			711			30		4	%	1,466			1,408			58		4	%	EMEA	769			741			28		4	%	1,523			1,466			57		4	%
Percentage of service revenue	22.2		%	22.4		%					22.2		%	22.2		%					Percentage of service revenue	22.7		%	22.2		%					22.6		%	22.2		%
APJC	515			459			56		12	%	1,001			904			97		11	%	APJC	538			515			23		4	%	1,057			1,001			56		6	%
Percentage of service revenue	15.5		%	14.5		%					15.1		%	14.2		%					Percentage of service revenue	15.9		%	15.5		%					15.7		%	15.1		%
Total	$	3,334		$	3,173		$	161	5	%	$	6,615		$	6,355		$	260	4	%	Total	$	3,388		$	3,334		$	54	2	%	$	6,730		$	6,615		$	115	2	%

Amounts may not sum and percentages may not recalculate due to rounding.

Service revenue increased 5%2% in each of the second quarter ~~of fiscal 2020~~ and ~~increased 4% in the~~ first six months of fiscal ~~2020~~2021 compared to the corresponding periods of fiscal ~~2019.~~2020. The increases in both periods were driven by ~~an increase~~revenue growth in ~~software and~~ solution support offerings. Service revenue increased across all geographic segments.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Gross Margin

The following table presents the gross margin for products and services (in millions, except percentages):

Three Months Ended Six Months Ended
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
January 25,
2020 January 26,
2019 January 25,
2020 January 26,
2019 January 25,
2020 January 26,
2019 January 25,
2020 January 26,
2019
Gross margin:
Product $ 5,545
$ 5,659
63.9 % 61.0 % $ 11,899
$ 11,750
64.1 % 61.3 %
Service 2,219
2,114
66.6 % 66.6 % 4,329
4,169
65.4 % 65.6 %
Total $ 7,764
$ 7,773
64.7 % 62.5 % $ 16,228
$ 15,919
64.5 % 62.4 %

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~~CISCO SYSTEMS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)~~


	Three Months Ended								Six Months Ended
	AMOUNT				PERCENTAGE				AMOUNT				PERCENTAGE
	January 23, 2021		January 25, 2020		January 23, 2021		January 25, 2020		January 23, 2021		January 25, 2020		January 23, 2021		January 25, 2020
Gross margin:
Product	$	5,528	$	5,545	64.5	%	63.9	%	$	10,909	$	11,899	63.6	%	64.1	%
Service	2,256		2,219		66.6	%	66.6	%	4,456		4,329		66.2	%	65.4	%
Total	$	7,784	$	7,764	65.1	%	64.7	%	$	15,365	$	16,228	64.3	%	64.5	%

Product Gross Margin

The following table summarizes the key factors that contributed to the change in product gross margin percentage for the second quarter and first six months of fiscal ~~2020~~,2021, as compared with the corresponding prior year periods:


						Product Gross Margin Percentage
	Product Gross Margin Percentage					Three Months Ended		Six Months Ended
	Three Months Ended		Six Months Ended
Fiscal 2019	61.0	%	61.3	%
Fiscal 2020					Fiscal 2020	63.9	%	64.1	%
Productivity ⁽¹⁾	3.4	%	2.6	%	Productivity (1)	0.6	%	(0.1)	%
Product pricing	(1.1	)%	(0.5	)%	Product pricing	(1.6)	%	(1.6)	%
Mix of products sold	0.8	%	0.7	%	Mix of products sold	1.7	%	1.6	%
Impact from divestiture of SPVSS business	—	%	0.2	%
Legal and indemnification charge					Legal and indemnification charge	—	%	(0.2)	%
Others	(0.2	)%	(0.2	)%	Others	(0.1)	%	(0.2)	%
Fiscal 2020	63.9	%	64.1	%
Fiscal 2021					Fiscal 2021	64.5	%	63.6	%

⁽¹⁾Productivity includes overall manufacturing-related costs, such as component costs, warranty expense, provision for inventory, freight, logistics, shipment volume, and other items not categorized elsewhere.

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Product gross margin increased by ~~2.9~~0.6 percentage points driven by favorable product mix and productivity improvements, ~~and product mix,~~ partially offset by ~~unfavorable impacts from product pricing.~~pricing erosion.

Productivity improvements were driven by cost reductions including value engineering efforts (e.g. component redesign, board configuration, test processes and transformation processes) and continued ~~operational~~ efficiency in manufacturing operations. In the second quarter of fiscal 2021, as a result of the COVID-19 pandemic, we continued to incur additional logistics costs, such as freight which had a negative impact on product gross margin. The ~~negative~~ pricing ~~impact~~erosion was driven by typical market factors and impacted each of our geographic segments. The favorable ~~product~~ mix was driven by ~~impacts~~changes in the proportion of products sold from each of our product ~~categories.~~categories as compared to the corresponding period of fiscal 2020.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Product gross margin ~~increased~~decreased by ~~2.8~~0.5 percentage points driven by ~~productivity improvements~~pricing erosion and ~~product mix,~~to a lesser extent, productivity, partially offset by ~~unfavorable~~favorable impacts from product ~~pricing. Our~~mix. In the first six months of fiscal 2021, as a result of the COVID-19 pandemic, we incurred additional logistics costs, such as freight which had a negative impact on product gross ~~margin also benefited from the sale of our lower margin SPVSS business during the second quarter of fiscal 2019.~~

~~Productivity improvements were driven by cost reductions including value engineering efforts and continued operational efficiency in manufacturing operations.~~margin.

Service Gross Margin

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Our service gross margin percentage was flat primarily due to ~~increased~~higher sales volume and favorable mix of service offerings, partially offset by higher headcount-related and delivery ~~costs offset by higher sales volume.~~costs.

Our service gross margin normally experiences some fluctuations due to various factors such as the timing of contract initiations in our renewals, our strategic investments in headcount, and the resources we deploy to support the overall service business. Other factors include the mix of service offerings, as the gross margin from our advanced services is typically lower than the gross margin from technical support services.

~~Six Months Ended January 25, 2020 Compared with Six Months Ended January 26, 2019~~

Service gross margin percentage decreased by 0.2 percentage points due to increased headcount-related and increased delivery costs. These costs impacts were partially offset by the resulting benefit to gross margin of higher sales volume.

5452

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Research and Development (“R&D”), Sales and Marketing, and General and Administrative (“G&A”) Expenses

R&D, sales and marketing, and G&A expenses are summarized in the following table (in millions, except percentages):


	Three Months Ended											Six Months Ended											Three Months Ended										Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars			Variance in Percent		January 25, 2020			January 26, 2019			Variance in Dollars		Variance in Percent			January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent		January 23, 2021			January 25, 2020			Variance in Dollars		Variance in Percent
Research and development	$	1,570		$	1,557		$	13		1	%	$	3,236		$	3,165		$	71	2	%	Research and development	$	1,527		$	1,570		$	(43)	(3)	%	$	3,139		$	3,236		$	(97)	(3)	%
Percentage of revenue	13.1		%	12.5		%						12.9		%	12.4		%					Percentage of revenue	12.8		%	13.1		%					13.1		%	12.9		%
Sales and marketing	2,279			2,271			8			—	%	4,759			4,681			78		2	%	Sales and marketing	2,277			2,279			(2)		—	%	4,494			4,759			(265)		(6)	%
Percentage of revenue	19.0		%	18.2		%						18.9		%	18.3		%					Percentage of revenue	19.0		%	19.0		%					18.8		%	18.9		%
General and administrative	455			509			(54		)	(11	)%	974			720			254		35	%	General and administrative	484			455			29		6	%	1,028			974			54		6	%
Percentage of revenue	3.8		%	4.1		%						3.9		%	2.8		%					Percentage of revenue	4.0		%	3.8		%					4.3		%	3.9		%
Total	$	4,304		$	4,337		$	(33	)	(1	)%	$	8,969		$	8,566		$	403	5	%	Total	$	4,288		$	4,304		$	(16)	—	%	$	8,661		$	8,969		$	(308)	(3)	%
Percentage of revenue	35.9		%	34.8		%						35.6		%	33.6		%					Percentage of revenue	35.9		%	35.9		%					36.3		%	35.6		%

R&D Expenses

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

R&D expenses ~~increased~~decreased due to ~~higher~~lower headcount-related expenses, ~~and higher share-based compensation expense. These increases were partially offset by lower~~ contracted services spending and discretionary spending.

We continue to invest in R&D in order to bring a broad range of products to market in a timely fashion. If we believe that we are unable to enter a particular market in a timely manner with internally developed products, we may purchase or license technology from other businesses, or we may partner with or acquire businesses as an alternative to internal R&D.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

R&D expenses ~~increased~~decreased primarily due to ~~higher~~lower discretionary spending and headcount-related expenses, ~~and~~partially offset by higher share-based compensation expense. ~~These increases were partially offset by lower contracted services spending.~~

Sales and Marketing Expenses

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Sales and marketing expenses were flat due to higher headcount-related expenses and contracted services spending, partially offset by lower ~~contracted services spending,~~ discretionary ~~spending and, to a lesser extent, lower share-based compensation expense.~~spending.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

Sales and marketing expenses ~~increased~~decreased primarily due to ~~higher headcount-related expenses,~~lower discretionary spending and lower acquisition-related costs partially offset by ~~lower discretionary spending, lower contracted services and, to a lesser extent, lower share-based compensation expense.~~higher headcount-related expenses.

G&A Expenses

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

G&A expenses ~~decreased~~increased due to athe impact from the gain recognized on the sale of property that had been held for sale in the second quarter of fiscal 2020, partially offset by ~~higher~~lower contracted services spending, lower headcount-related expenses and lower discretionary spending.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

G&A expenses increased due to the impact ~~of the benefit~~ from the ~~$400 million litigation settlement with Arista from~~gain recognized on the ~~first~~sale of property that had been held for sale in the second quarter of fiscal ~~2019 and higher discretionary spending,~~2020, partially offset by lower ~~contracted services spending, lower acquisition-related/divestiture~~acquisition-related costs and lower ~~share-based compensation expense.~~discretionary spending.

Effect of Foreign Currency

In the second quarter of fiscal ~~2020,~~2021, foreign currency fluctuations, net of hedging, ~~decreased~~increased the combined R&D, sales and marketing, and G&A expenses by approximately ~~$12~~$29 million, or ~~0.3%~~0.7%, compared with the second quarter of fiscal ~~2019.~~2020.

In the first six months of fiscal ~~2020,~~2021, foreign currency fluctuations, net of hedging, ~~decreased~~increased the combined R&D, sales and marketing, and G&A expenses by approximately ~~$58~~$43 million or ~~0.7%~~0.5%, compared with the first six months of fiscal ~~2019.~~

2020.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Amortization of Purchased Intangible Assets

The following table presents the amortization of purchased intangible assets including impairment charges (in millions):


	Three Months Ended				Six Months Ended
	January 23, 2021		January 25, 2020		January 23, 2021		January 25, 2020
Amortization of purchased intangible assets:
Cost of sales	$	156	$	165	$	326	$	331
Operating expenses	39		38		75		74
Total	$	195	$	203	$	401	$	405

Three Months Ended Six Months Ended
January 25,
2020 January 26,
2019 January 25,
2020 January 26,
2019
Amortization of purchased intangible assets:
Cost of sales $ 165
$ 156
$ 331
$ 307
Operating expenses 38
39
74
73
Total $ 203
$ 195
$ 405
$ 380

~~Three Months Ended January 25, 2020 Compared with Three Months Ended January 26, 2019~~

~~The increase in amortization~~For each of ~~purchased intangible assets in~~ the second quarter and first six months of fiscal ~~2020~~2021, the decrease was primarily due ~~largely~~ to ~~the~~lower amortization of purchased intangibles from our recent acquisitions.

~~Six Months Ended January 25, 2020 Compared with Six Months Ended January 26, 2019~~

Amortization of purchased intangible assets increased due largely to the amortization of purchased intangibles from our recent acquisitions, partially offset by the purchased intangible assets related to the divestiture of SPVSS business in the second quarter of fiscal 2019.

Restructuring and Other Charges

WeIn the first quarter of fiscal 2021, we initiated a restructuring plan, during fiscal 2018 in order to realign our organization and enable further investment in key priority areas. In connection with this restructuring plan, we incurred charges of $42 million and $226 million for the second quarter and first six months of fiscal 2020, respectively, and have incurred cumulative charges of $656 million since inception. We completed the Fiscal 2018 Plan in the second quarter of fiscal 2020.

~~We initiated~~which includes a ~~restructuring plan in the third quarter of fiscal 2020~~voluntary early retirement program, in order to realign the organization and enable further investment in key priority areas. The total pretax charges are estimated to be approximately ~~$300~~$900 million. In connection with this restructuring plan, we incurred charges of $232 million and $834 million for the second quarter and first six months of fiscal 2021. We expect the plan to be substantially completed in fiscal 2021 and estimate it will generate cost savings of approximately $1.0 billion on an annualized basis over the next few quarters.

We initiated a restructuring plan during fiscal 2020 in order to realign the organization and enable further investment in key priority areas. In connection with this restructuring plan, we have incurred cumulative charges of $257 million. We expect ~~the Fiscal 2020 Plan~~this restructuring plan to be substantially completed in fiscal 2021.

These charges are primarily cash-based and consisted of employee severance and other one-time termination benefits, and other costs. We expect to reinvest substantially all of the cost savings from these restructuring actions in our key priority areas. As a result, the overall cost savings from these restructuring actions are not expected to be material for future periods.

Operating Income

The following table presents our operating income and our operating income as a percentage of revenue (in millions, except percentages):


	Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
	January 25, 2020			January 26, 2019			January 25, 2020			January 26, 2019				January 23, 2021			January 25, 2020			January 23, 2021			January 25, 2020
Operating income	$	3,380		$	3,211		$	6,959		$	7,016		Operating income	$	3,223		$	3,380		$	5,793		$	6,959
Operating income as a percentage of revenue	28.2		%	25.8		%	27.7		%	27.5		%	Operating income as a percentage of revenue	26.9		%	28.2		%	24.2		%	27.7		%

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

Operating income ~~increased~~decreased by 5%, and as a percentage of revenue operating income ~~increased~~decreased by ~~2.4~~1.3 percentage points. These ~~increases~~changes resulted primarily ~~from: lower~~from higher restructuring and other charges, ~~and a gross margin percentage increase (driven by productivity improvements and product mix, partially offset by unfavorable impacts from pricing).~~

~~Six Months Ended January 25, 2020 Compared with Six Months Ended January 26, 2019~~

Operating income decreased by 1%, and as a percentage of revenue operating income increased by 0.2 percentage points. These increases resulted primarily from: the impact of the benefit from the $400 million litigation settlement with Arista in the first quarter of fiscal 2019 and a revenue decrease, partially offset by a gross margin percentage increase (driven by favorable product mix and productivity ~~improvements)~~improvements, partially offset by pricing erosion).

Six Months Ended January 23, 2021 Compared with Six Months Ended January 25, 2020

Operating income decreased by 17%, and as a percentage of revenue operating income decreased by 3.5 percentage points. These changes resulted primarily from a revenue decrease, higher restructuring and other charges and a gross margin percentage decrease (driven by pricing erosion).

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Interest and Other Income (Loss), Net

Interest Income (Expense), Net The following table summarizes interest income and interest expense (in millions):


	Three Months Ended									Six Months Ended										Three Months Ended						Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars			January 25, 2020			January 26, 2019			Variance in Dollars				January 23, 2021		January 25, 2020		Variance in Dollars		January 23, 2021		January 25, 2020		Variance in Dollars
Interest income	$	242		$	328		$	(86	)	$	515		$	672		$	(157	)	Interest income	$	161	$	242	$	(81)	$	335	$	515	$	(180)
Interest expense	(158		)	(223		)	65			(336		)	(444		)	108			Interest expense	(113)		(158)		45		(225)		(336)		111
Interest income (expense), net	$	84		$	105		$	(21	)	$	179		$	228		$	(49	)	Interest income (expense), net	$	48	$	84	$	(36)	$	110	$	179	$	(69)

For each of the second quarter and first six months of fiscal ~~2020,~~2021, interest income decreased driven by ~~a decrease in the average balance of cash and available-for-sale debt investments.~~lower yields on our portfolio. The decrease in interest expense was driven by a lower average debt balance and the impact of lower effective interest rates.

Other Income (Loss), NetThe components of other income (loss), net, are summarized as follows (in millions):


	Three Months Ended									Six Months Ended										Three Months Ended						Six Months Ended
	January 25, 2020			January 26, 2019			Variance in Dollars			January 25, 2020			January 26, 2019			Variance in Dollars				January 23, 2021		January 25, 2020		Variance in Dollars		January 23, 2021		January 25, 2020		Variance in Dollars
Gains (losses) on investments, net:																			Gains (losses) on investments, net:
Available-for-sale debt investments	$	11		$	(5	)	$	16		$	21		$	(11	)	$	32		Available-for-sale debt investments	$	9	$	11	$	(2)	$	24	$	21	$	3
Marketable equity investments	—			61			(61		)	—			57			(57		)	Marketable equity investments	—		—		—		(1)		—		(1)
Non-marketable equity and other investments	81			(3		)	84			91			1			90			Non-marketable equity and other investments	(17)		81		(98)		25		91		(66)
Net gains (losses) on investments	92			53			39			112			47			65			Net gains (losses) on investments	(8)		92		(100)		48		112		(64)
Other gains (losses), net	(22		)	(26		)	4			(30		)	(39		)	9			Other gains (losses), net	(8)		(22)		14		(15)		(30)		15
Other income (loss), net	$	70		$	27		$	43		$	82		$	8		$	74		Other income (loss), net	$	(16)	$	70	$	(86)	$	33	$	82	$	(49)

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

The total change in net gains (losses) on available-for-sale debt investments was primarily attributable to higher realized gains as a result of market conditions, and the timing of sales of these investments. The total change in net gains (losses) on marketable equity investments was attributable to market value fluctuations and the timing of recognition of gains and losses. The change in net gains (losses) on non-marketable equity and other investments was primarily due to higher net realized ~~gains and higher unrealized gains, partially~~losses, offset by higher net unrealized gains, and lower impairment charges. The change in other gains (losses), net was driven by impacts from foreign exchange and our equity derivatives.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

The total change in net gains (losses) on available-for-sale debt investments was primarily attributable to higher realized gains as a result of market conditions, and the timing of sales of these investments. The total change in net gains (losses) on marketable equity investments was attributable to market value fluctuations and the timing of recognition of gains and losses. The change in net gains (losses) on non-marketable equity and other investments was primarily due to higher net realized losses, offset by higher net unrealized gains and ~~higher unrealized gains, partially offset by higher~~lower impairment charges. The change in other gains (losses), net was primarily driven by ~~higher gains from customer lease terminations and~~the impacts from foreign exchange and our equity ~~derivatives, partially offset by higher donation expense and unfavorable foreign exchange impacts.~~derivatives.

Provision for Income Taxes

Three Months Ended January ~~25, 2020~~23, 2021 Compared with Three Months Ended January ~~26, 2019~~25, 2020

The provision for income taxes resulted in an effective tax rate of 21.8% for the second quarter of fiscal 2021 compared with 18.6% for the second quarter of fiscal ~~2020 compared with 15.6% for the second quarter of fiscal 2019.~~2020. The increase in the effective tax rate was primarily due to a ~~decrease in~~ foreign ~~income taxed at lower than U.S. rates (1.3 point increase)~~tax audit settlement expense and a decrease in ~~discrete net~~excess tax benefits from share-based compensation in the second quarter of fiscal ~~2020~~2021 as compared to the second quarter of fiscal ~~2019 (1.7 point increase).~~

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~~CISCO SYSTEMS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)~~

2020.

Our effective tax rate will increase or decrease based upon the tax effect of the difference between the share-based compensation expenses and the benefits taken on the company's tax returns. We recognize excess tax benefits on a discrete basis and therefore anticipate the effective tax rate to vary from quarter to quarter depending on our share price in each period.

Six Months Ended January ~~25, 2020~~23, 2021 Compared with Six Months Ended January ~~26, 2019~~25, 2020

The provision for income taxes resulted in an effective tax rate of 20.5% for the first six months of fiscal 2021 compared with 19.6% for the first six months of fiscal ~~2020 compared with 12.1% for the first six months of fiscal 2019.~~2020. The increase in ~~the~~ effective tax rate was primarily due to a decrease in ~~foreign income taxed at lower than U.S. rates (1.5 point increase) and a decrease in discrete net~~excess tax benefits from share-based compensation in ~~the first six months of~~ fiscal ~~2020~~2021 as compared to ~~the first six months of~~ fiscal ~~2019 (5.8 point increase).~~

2020.

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

LIQUIDITY AND CAPITAL RESOURCES

The following sections discuss the effects of changes in our balance sheet, our capital allocation strategy including stock repurchase program and dividends, our contractual obligations, and certain other commitments and activities on our liquidity and capital resources.

Balance Sheet and Cash Flows

Cash and Cash Equivalents and Investments The following table summarizes our cash and cash equivalents and investments (in millions):


	January 25, 2020		July 27, 2019		Increase (Decrease)				January 23, 2021		July 25, 2020		Increase (Decrease)
Cash and cash equivalents	$	8,475	$	11,750	$	(3,275	)	Cash and cash equivalents	$	11,793	$	11,809	$	(16)
Available-for-sale debt investments	18,587		21,660		(3,073		)	Available-for-sale debt investments	18,790		17,610		1,180
Marketable equity securities	—		3		(3		)	Marketable equity securities	5		—		5
Total	$	27,062	$	33,413	$	(6,351	)	Total	$	30,588	$	29,419	$	1,169

The ~~decrease~~net increase in cash and cash equivalents and investments in the first six months of fiscal ~~2020~~2021 was primarily driven by ~~a net decrease in debt~~cash provided by operating activities of ~~$8.7 billion;~~$7.1 billion. This source of cash ~~dividends of $3.0 billion;~~was partially offset by cash returned to shareholders in the form of repurchases of common stock of $1.6 billion ~~under the stock repurchase program; capital expenditures~~and cash dividends of ~~$0.4~~$3.0 billion; ~~and~~ net cash paid for acquisitions and divestitures of ~~$0.2 billion. These uses~~$0.9 billion and capital expenditures of ~~cash were partially offset by cash provided by operating activities of $7.4~~$0.4 billion.

In addition to cash requirements in the normal course of business, on July 9, 2019 we announced our intent to acquire Acacia. On January 14, 2021, we announced an amendment to the definitive merger agreement. Under the amended agreement, we have agreed to acquire Acacia for a net purchase consideration of approximately ~~$2.6~~$4.5 billion ~~in cash. In addition,~~on a fully diluted basis, net of cash and marketable securities. Additionally, approximately $0.7 billion of the U.S. transition tax on accumulated earnings for foreign subsidiaries is payable in less than one year. Also, ~~$1.5~~$5.0 billion of long-term debt outstanding at January ~~25, 2020~~23, 2021 will mature within the next 12 months from the balance sheet date. See further discussion of liquidity under “Liquidity and Capital Resource Requirements” below.

We maintain an investment portfolio of various holdings, types, and maturities. We classify our investments as short-term investments based on their nature and their availability for use in current operations. We believe the overall credit quality of our portfolio is strong, with our cash equivalents and our available-for-sale debt investment portfolio consisting primarily of high quality investment-grade securities. We believe that our strong cash and cash equivalents and investments position is critical at this time of uncertainty due to the COVID-19 pandemic and allows us to use our cash resources for strategic investments to gain access to new technologies, for acquisitions, for customer financing activities, for working capital needs, and for the repurchase of shares of common stock and payment of dividends as discussed below.

Securities Lending We periodically engage in securities lending activities with certain of our available-for-sale debt investments. These transactions are accounted for as a secured lending of the securities, and the securities are typically loaned only on an overnight basis. We require collateral equal to at least 102% of the fair market value of the loaned security and that the collateral be in the form of cash or liquid, high-quality assets. We engage in these secured lending transactions only with highly creditworthy counterparties, and the associated portfolio custodian has agreed to indemnify us against collateral losses. We did not experience any losses in connection with the secured lending of securities during the periods presented.

Free Cash Flow and Capital Allocation As part of our capital allocation strategy, we intend to return a minimum of 50% of our free cash flow annually to our shareholders through cash dividends and repurchases of common stock.

We define free cash flow as net cash provided by operating activities less cash used to acquire property and equipment. The following table reconciles our net cash provided by operating activities to free cash flow (in millions):


	Six Months Ended
	January 23, 2021		January 25, 2020
Net cash provided by operating activities	$	7,070	$	7,387
Acquisition of property and equipment	(358)		(391)
Free cash flow	$	6,712	$	6,996

Six Months Ended
January 25,
2020 January 26,
2019
Net cash provided by operating activities $ 7,387
$ 7,560
Acquisition of property and equipment (391 ) (473 )
Free cash flow $ 6,996
$ 7,087

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the rate at which products are shipped during the quarter (which we refer to as shipment linearity), the timing and collection of accounts receivable and financing receivables, inventory and supply chain management,

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~~CISCO SYSTEMS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)~~

deferred revenue, and the timing and amount of tax and other payments. For additional discussion, see “Part II, Item 1A. Risk Factors” in this report.

We consider free cash flow to be a liquidity measure that provides useful information to management and investors because of our intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. We further regard free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in our business, make strategic acquisitions, repurchase common stock, and pay dividends on our common stock, after deducting capital investments. A limitation of the utility of free cash flow as a measure of financial performance and liquidity is that the free cash flow does not represent the total increase or decrease in our cash balance for the period. In addition, we have other required uses of cash, including repaying the principal of our outstanding indebtedness. Free cash flow is not a measure calculated in accordance with U.S. generally accepted accounting principles and should not be regarded in isolation or as an alternative for net cash provided by operating activities or any other measure calculated in accordance with such principles, and other companies may calculate free cash flow in a different manner than we do.

The following table summarizes the dividends paid and stock repurchases (in millions, except per-share amounts):

DIVIDENDS STOCK REPURCHASE PROGRAM
Quarter Ended Per Share Amount Shares Weighted-Average Price per Share Amount TOTAL
Fiscal 2020
January 25, 2020 $ 0.35
$ 1,486
18
$ 46.71
$ 870
$ 2,356
October 26, 2019 $ 0.35
$ 1,486
16
$ 48.91
$ 768
$ 2,254

Fiscal 2019
July 27, 2019 $ 0.35
$ 1,490
82
$ 54.99
$ 4,515
$ 6,005
April 27, 2019 $ 0.35
$ 1,519
116
$ 52.14
$ 6,020
$ 7,539
January 26, 2019 $ 0.33
$ 1,470
111
$ 45.09
$ 5,016
$ 6,486
October 27, 2018 $ 0.33
$ 1,500
109
$ 46.01
$ 5,026
$ 6,526


	DIVIDENDS				STOCK REPURCHASE PROGRAM
Quarter Ended	Per Share		Amount		Shares	Weighted-Average Price per Share		Amount		TOTAL
Fiscal 2021
January 23, 2021	$	0.36	$	1,521	19	$	42.82	$	801	$	2,322
October 24, 2020	$	0.36	$	1,520	20	$	40.44	$	800	$	2,320

Fiscal 2020
July 25, 2020	$	0.36	$	1,525	—	$	—	$	—	$	1,525
April 25, 2020	$	0.36	$	1,519	25	$	39.71	$	981	$	2,500
January 25, 2020	$	0.35	$	1,486	18	$	46.71	$	870	$	2,356
October 26, 2019	$	0.35	$	1,486	16	$	48.91	$	768	$	2,254

On February ~~12, 2020,~~9, 2021, our Board of Directors declared a quarterly dividend of ~~$0.36~~$0.37 per common share to be paid on April ~~22, 2020~~28, 2021 to all ~~shareholders~~stockholders of record as of the close of business on April ~~3, 2020.~~6, 2021. Any future dividends are subject to the approval of our Board of Directors.

The remaining authorized amount for stock repurchases under this program ~~including the additional authorization,~~ is approximately ~~$11.8~~$9.2 billion, with no termination date.

Accounts Receivable, Net The following table summarizes our accounts receivable, net (in millions):

January 25,
2020 July 27,
2019 Increase (Decrease)
Accounts receivable, net $ 4,330
$ 5,491
$ (1,161 )


	January 23, 2021		July 25, 2020		Increase (Decrease)
Accounts receivable, net	$	4,307	$	5,472	$	(1,165)

Our accounts receivable net, as of January ~~25, 2020~~23, 2021 decreased by approximately 21%, as compared with the end of fiscal ~~2019,~~2020, primarily due to timing and amount of product and service billings in the second quarter of fiscal ~~2020~~2021 compared with the fourth quarter of fiscal ~~2019.~~2020.

Inventory Supply Chain The following table summarizes our inventories and purchase commitments with contract manufacturers and suppliers (in millions):


	January 25, 2020		July 27, 2019		Increase (Decrease)				January 23, 2021		July 25, 2020		Increase (Decrease)
Inventories	$	1,353	$	1,383	$	(30	)	Inventories	$	1,436	$	1,282	$	154
Purchase commitments with contract manufacturers and suppliers	$	4,482	$	4,967	$	(485	)	Purchase commitments with contract manufacturers and suppliers	$	4,588	$	4,406	$	182

Inventory as of January ~~25, 2020 decreased~~23, 2021 increased by 2%12% from our inventory balance at the end of fiscal ~~2019.~~2020. The ~~decrease~~increase in inventory was primarily due to ~~lower deferred cost of sales, partially offset by~~ an increase in raw materials and finished ~~goods and raw materials.~~goods. Purchase commitments with contract ~~manufacturers and suppliers decreased 10% compared to the end of fiscal 2019. On a combined basis,~~

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CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

manufacturers and suppliers increased 4% compared to the end of fiscal 2020. On a combined basis, inventories and purchase commitments with contract manufacturers and suppliers ~~decreased by 8%~~increased 6% compared with the end of fiscal ~~2019.~~2020. We believe our inventory and purchase commitments levels are in line with our current demand forecasts.

We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or that establish the parameters defining our requirements and our commitment to securing manufacturing capacity.

Our purchase commitments are for short-term product manufacturing requirements as well as for commitments to suppliers to secure manufacturing capacity. Certain of our purchase commitments with contract manufacturers and suppliers relate to arrangements to secure long-term pricing for certain product components for multi-year periods. A significant portion of our reported purchase commitments arising from these agreements are firm, noncancelable, and unconditional commitments. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed.

Inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility to help ensure competitive lead times with the risk of inventory obsolescence because of rapidly changing technology and customer requirements. We believe the amount of our inventory and purchase commitments is appropriate for our revenue levels.

Financing Receivables and Guarantees The following table summarizes our financing receivables (in millions):


	January 25, 2020		July 27, 2019		Increase (Decrease)				January 23, 2021		July 25, 2020		Increase (Decrease)
Lease receivables, net	$	2,208	$	2,326	$	(118	)	Lease receivables, net	$	1,840	$	2,088	$	(248)
Loan receivables, net	5,202		5,367		(165		)	Loan receivables, net	5,721		5,856		(135)
Financed service contracts, net	2,174		2,360		(186		)	Financed service contracts, net	2,566		2,821		(255)
Total, net	$	9,584	$	10,053	$	(469	)	Total, net	$	10,127	$	10,765	$	(638)



	•		~~Fluctuations in demand for our products and services, especially with respect to service providers and Internet businesses, in part due to changes in the global economic environment~~

•Changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue



	•		~~Changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue~~

•Our ability to maintain appropriate inventory levels and purchase commitments



	•		~~Our ability to maintain appropriate inventory levels and purchase commitments~~

•Price and product competition in the communications and networking industries, which can change rapidly due to technological innovation and different business models from various geographic regions



	•		~~Price and product competition in the communications and networking industries, which can change rapidly due to technological innovation and different business models from various geographic regions~~

•The overall movement toward industry consolidation among both our competitors and our customers



	•		~~The overall movement toward industry consolidation among both our competitors and our customers~~

•The introduction and market acceptance of new technologies and products, and our success in new and evolving markets, and in emerging technologies, as well as the adoption of new standards



	•		~~The introduction and market acceptance of new technologies and products, and our success in new and evolving markets, and in emerging technologies, as well as the adoption of new standards~~

•The transformation of our business to deliver more software and subscription offerings where revenue is recognized over time



	•		~~The transformation of our business to deliver more software and subscription offerings where revenue is recognized over time~~

•Variations in sales channels, product costs, mix of products sold, or mix of direct sales and indirect sales



	•		~~Variations in sales channels, product costs, mix of products sold, or mix of direct sales and indirect sales~~

•The timing, size, and mix of orders from customers



	•		~~The timing, size, and mix of orders from customers~~

•Manufacturing and customer lead times



	•		~~Manufacturing and customer lead times~~

•Fluctuations in our gross margins, and the factors that contribute to such fluctuations



	•		~~Fluctuations in our gross margins, and the factors that contribute to such fluctuations, as described below~~

•The ability of our customers, channel partners, contract manufacturers and suppliers to obtain financing or to fund capital expenditures, especially during a period of global credit market disruption or in the event of customer, channel partner, contract manufacturer or supplier financial problems



	•		The ability of our customers, channel partners, contract manufacturers and suppliers to obtain financing or to fund capital expenditures, especially during a period of global credit market disruption or in the event of customer, channel partner, contract manufacturer or supplier financial problems

•Actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used in determining the values of certain assets (including the amounts of related valuation allowances), liabilities, and other items reflected in our Consolidated Financial Statements



	•		Actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used in determining the values of certain assets (including the amounts of related valuation allowances), liabilities, and other items reflected in our Consolidated Financial Statements

•How well we execute on our strategy and operating plans and the impact of changes in our business model that could result in significant restructuring charges



	•		~~How well we execute on our strategy and operating plans and the impact of changes in our business model that could result in significant restructuring charges~~

•Our ability to achieve targeted cost reductions



	•		~~Our ability to achieve targeted cost reductions~~

•Benefits anticipated from our investments



	•		~~Benefits anticipated from our investments in engineering, sales, service, and marketing~~



	•		~~Changes in tax laws or accounting rules, or interpretations thereof~~

•Entry into new markets or growth in lower margin markets, including markets with different pricing and cost structures, through acquisitions or internal development



	•		~~The timing of revenue recognition and revenue deferrals~~

•Sales discounts



	•		Increased cost (including those caused by tariffs), loss of cost savings or dilution of savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand or if the financial health of either contract manufacturers or suppliers deteriorates

•Increases in material, labor or other manufacturing-related costs, which could be significant especially during periods of supply constraints such as those impacting the market for memory components



	•		~~Lower than expected benefits from value engineering~~

•Excess inventory, inventory holding charges, and obsolescence charges



	•		~~Increased price competition, including competitors from Asia, especially from China~~

•Changes in shipment volume



	•		~~Changes in distribution channels~~

•The timing of revenue recognition and revenue deferrals



	•		~~Increased warranty costs~~

•Increased cost (including those caused by tariffs), loss of cost savings or dilution of savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand or if the financial health of either contract manufacturers or suppliers deteriorates



	•		~~Increased amortization of purchased intangible assets, especially from acquisitions~~

•Lower than expected benefits from value engineering



	•		~~How well we execute on our strategy and operating plans~~

•Increased price competition, including competitors from Asia, especially from China

•Changes in distribution channels

•Increased warranty or royalty costs

•Increased amortization of purchased intangible assets, especially from acquisitions

•How well we execute on our strategy and operating plans

Changes in service gross margin may result from various factors such as changes in the mix between technical support services and advanced services, as well as the timing of technical support service contract initiations and renewals and the addition of personnel and other resources to support higher levels of service business in future periods.

~~SALES TO THE SERVICE PROVIDER MARKET ARE ESPECIALLY VOLATILE, AND WEAKNESS IN ORDERS FROM THIS INDUSTRY MAY HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION~~Sales to the service provider market are especially volatile, and weakness in orders from this industry may harm our operating results and financial condition.

Sales to the service provider market have been characterized by large and sporadic purchases, especially relating to our router sales and sales of certain other Infrastructure Platforms and Applications products, in addition to longer sales cycles. Service provider product orders decreased during the first ~~half~~quarter of fiscal ~~2020~~2021 and in certain prior periods, and at various times in the past, including in recent quarters, we have experienced significant weakness in product orders from service providers. Product orders from the service provider market could continue to decline and, as has been the case in the past, such weakness could persist over extended periods of time given fluctuating market conditions. Sales activity in this industry depends upon the stage of completion of expanding network infrastructures; the availability of funding; and the extent to which service providers are affected by regulatory, economic, and business conditions in the country of operations. Weakness in orders from this industry, including as a result of any slowdown in capital expenditures by service providers (which may be more prevalent during a global economic downturn, or periods of economic, political or regulatory uncertainty), could have a material adverse effect on our business, operating results, and financial condition. Such slowdowns may continue or recur in future periods. Orders from this industry could decline for many reasons other than the competitiveness of our products and services within their respective markets. For example, in the past, many of our service provider customers have been materially and adversely affected by slowdowns in the general economy, by overcapacity, by changes in the service provider market, by regulatory developments, and by constraints on capital availability, resulting in business failures and substantial reductions in spending and expansion plans. These conditions have materially harmed our business and operating results in the past, and ~~some of these or other conditions in the service provider market~~ could affect our business and operating results in any future period. Finally, service provider customers typically have longer implementation cycles; require a broader range of services, including design services; demand that vendors take on a larger share of risks; often require acceptance provisions, which can lead to a delay in revenue recognition; and expect financing from vendors. All these factors can add further risk to business conducted with service providers.

~~DISRUPTION OF OR CHANGES IN OUR DISTRIBUTION MODEL COULD HARM OUR SALES AND MARGINS~~Disruption of or changes in our distribution model could harm our sales and margins.

If we fail to manage distribution of our products and services properly, or if our distributors’ financial condition or operations weaken, our revenue and gross margins could be adversely affected.

A substantial portion of our products and services is sold through our channel partners, and the remainder is sold through direct sales. Our channel partners include systems integrators, service providers, other resellers, and distributors. Systems integrators and service providers typically sell directly to end users and often provide system installation, technical support, professional services, and other support services in addition to network equipment sales. Systems integrators also typically integrate our products into an overall solution, and a number of service providers are also systems integrators. Distributors stock inventory and typically sell to systems integrators, service providers, and other resellers. We refer to sales through distributors as our two-tier system of sales to the end customer. These distributors are generally given business terms that allow them to return a portion of inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. If sales through

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indirect channels increase, this may lead to greater difficulty in forecasting the mix of our products and, to a degree, the timing of orders from our customers.

Historically, we have seen fluctuations in our gross margins based on changes in the balance of our distribution channels. ~~Although variability to date has not been significant, there~~There can be no assurance that changes in the balance of our distribution model in future periods would not have an adverse effect on our gross margins and profitability.

Some factors could result in disruption of or changes in our distribution model, which could harm our sales and margins, including the following:



	•		We compete with some of our channel partners, including through our direct sales, which may lead these channel partners to use other suppliers that do not directly sell their own products or otherwise compete with them



	•		~~Some of our channel partners may demand that we absorb a greater share of the risks that their customers may ask them to bear~~



	•		~~Some of our channel partners may have insufficient financial resources and may not be able to withstand changes and challenges in business conditions~~



	•		~~Revenue from indirect sales could suffer if our distributors’ financial condition or operations weaken~~

competition with some of our channel partners, including through our direct sales, which may lead these channel partners to use other suppliers that do not directly sell their own products or otherwise compete with them; some of our channel partners may demand that we absorb a greater share of the risks that their customers may ask them to bear; some of our channel partners may have insufficient financial resources and may not be able to withstand changes and challenges in business conditions; and revenue from indirect sales could suffer if our distributors’ financial condition or operations weaken. In addition, we depend on our channel partners globally to comply with applicable regulatory requirements. To the extent that they fail to do so, that could have a material adverse effect on our business, operating results, and financial condition. Further, sales of our products outside of agreed territories can result in disruption to our distribution channels.

~~THE MARKETS IN WHICH WE COMPETE ARE INTENSELY COMPETITIVE, WHICH COULD ADVERSELY AFFECT OUR ACHIEVEMENT OF REVENUE GROWTH~~The markets in which we compete are intensely competitive, which could adversely affect our achievement of revenue growth.

The markets in which we compete are characterized by rapid change, converging technologies, and a migration to networking and communications solutions that offer relative advantages. These market factors represent a competitive threat to us. We compete with numerous vendors in each product category. The overall number of our competitors providing niche product solutions may increase. Also, the identity and composition of competitors may change as we increase our activity in newer product areas, and in key priority and growth areas. For example, as products related to network programmability, such as software defined networking (SDN) products, become more prevalent, we expect to face increased competition from companies that develop networking products based on commoditized hardware, referred to as “white box” hardware, to the extent customers decide to purchase those product offerings instead of ours. In addition, the growth in demand for technology delivered as a service enables new competitors to enter the market.

As we continue to expand globally, we may see new competition in different geographic regions. In particular, we have experienced price-focused competition from competitors in Asia, especially from China, and we anticipate this will continue. Our competitors (in each case relative to only some of our products or services) ~~include~~include: Amazon Web Services LLC; Arista Networks, Inc.; Broadcom Inc.; CommScope Holding Company, Inc.; Check Point Software Technologies Ltd.; Dell Technologies Inc.; ~~Extreme Networks, Inc.;~~Dynatrace; F5 Networks, Inc.; FireEye, Inc.; Fortinet, Inc.; Hewlett-Packard Enterprise Company; Huawei Technologies Co., Ltd.; Juniper Networks, Inc.; Lenovo Group Limited; LogMeIn, Inc.; Microsoft Corporation; New Relic, Inc.; Nokia Corporation; Nutanix, Inc.; Palo Alto Networks, Inc.; RingCentral, Inc.; Slack Technologies, Inc.; Ubiquiti ~~Inc.;~~Networks; VMware, Inc.; Zoom Video Communications, Inc.; and Zscaler, Inc.; among others.

Some of our competitors compete across many of our product lines, while others are primarily focused in a specific product area. Barriers to entry are relatively low, and new ventures to create products that do or could compete with our products are regularly formed. In addition, some of our competitors may have greater resources, including technical and engineering resources, than we do. As we expand into new markets, we will face competition not only from our existing competitors but also from other competitors, including existing companies with strong technological, marketing, and sales positions in those markets. We also sometimes face competition from resellers and distributors of our products. Companies with which we have strategic alliances in some areas may be competitors in other areas, and ~~in our view~~ this trend may increase.

For example, the enterprise data center is undergoing a fundamental transformation arising from the convergence of technologies, including computing, networking, storage, and software, that previously were segregated. Due to several factors, including the availability of highly scalable and general purpose microprocessors, ~~application specific integrated circuits (ASICs)~~ASICs offering advanced services, standards based protocols, cloud computing and virtualization, the convergence of technologies within the enterprise data center is spanning multiple, previously independent, technology segments. Also, some of our current and potential competitors for enterprise data center business have made acquisitions, or announced new strategic alliances, designed to position them to provide end-to-end technology solutions for the enterprise data center. As a result of all of these developments, we face greater competition in the development and sale of enterprise data center technologies, including competition from entities that

are among our long-term strategic alliance partners. 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.

The principal competitive factors in the markets in which we presently compete and may compete in the future ~~include:~~include the ability to sell successful business outcomes; the ability to provide a broad range of networking and communications products and services; product performance; price; the ability to introduce new products, including providing continuous new customer value and products with price-performance advantages; the ability to reduce production costs; the ability to provide value-added



	•		~~The ability to sell successful business outcomes~~

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	•		~~The ability to provide a broad range of networking and communications products and services~~



	•		~~Product performance~~



	•		~~Price~~



	•		~~The ability to introduce new products, including providing continuous new customer value and products with price-performance advantages~~



	•		~~The ability to reduce production costs~~



	•		~~The ability to provide value-added features such as security, reliability, and investment protection~~



	•		~~Conformance to standards~~



	•		~~Market presence~~



	•		~~The ability to provide financing~~



	•		~~Disruptive technology shifts and new business models~~

features such as security, reliability, and investment protection; conformance to standards; market presence; the ability to provide financing; and disruptive technology shifts and new business models.

We also face competition from customers to which we license or supply technology and suppliers from which we transfer technology. The inherent nature of networking requires interoperability. As such, we must cooperate and at the same time compete with many companies. Any inability to effectively manage these complicated relationships with customers, suppliers, and strategic alliance partners could have a material adverse effect on our business, operating results, and financial condition and accordingly affect our chances of success.

~~INVENTORY MANAGEMENT RELATING TO OUR SALES TO OUR TWO-TIER DISTRIBUTION CHANNEL IS COMPLEX, AND EXCESS INVENTORY MAY HARM OUR GROSS MARGINS~~If we do not successfully manage our strategic alliances, we may not realize the expected benefits from such alliances, and we may experience increased competition or delays in product development.

We have several strategic alliances with large and complex organizations and other companies with which we work to offer complementary products and services and, in the past, have established a joint venture to market services associated with our Cisco Unified Computing System products. These arrangements are generally limited to specific projects, the goal of which is generally to facilitate product compatibility and adoption of industry standards. There can be no assurance we will realize the expected benefits from these strategic alliances or from the joint venture. If successful, these relationships may be mutually beneficial and result in industry growth. However, alliances carry an element of risk because, in most cases, we must compete in some business areas with a company with which we have a strategic alliance and, at the same time, cooperate with that company in other business areas. Also, if these companies fail to perform or if these relationships fail to materialize as expected, we could suffer delays in product development or other operational difficulties. Joint ventures can be difficult to manage, given the potentially different interests of joint venture partners.

Inventory management relating to our sales to our two-tier distribution channel is complex, and excess inventory may harm our gross margins.

We must manage inventory relating to sales to our distributors effectively, because inventory held by them could affect our results of operations. Our distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products. They also may adjust their orders in response to the supply of our products and the products of our competitors that are available to them, and in response to seasonal fluctuations in end-user demand. Our distributors are generally given business terms that allow them to return a portion of inventory, receive credits for changes in selling price, and participate in various cooperative marketing programs. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements. When facing component supply-related challenges, we have increased our efforts in procuring components in order to meet customer expectations. If we ultimately determine that we have excess inventory, we may have to reduce our prices and write down inventory, which in turn could result in lower gross margins.

SUPPLY CHAIN ISSUES, INCLUDING FINANCIAL PROBLEMS OF CONTRACT MANUFACTURERS OR COMPONENT SUPPLIERS, OR A SHORTAGE OF ADEQUATE COMPONENT SUPPLY OR MANUFACTURING CAPACITY THAT INCREASED OUR COSTS OR CAUSED A DELAY IN OUR ABILITY TO FULFILL ORDERS, COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS AND OPERATING RESULTS, AND OUR FAILURE TO ESTIMATE CUSTOMER DEMAND PROPERLY MAY RESULT IN EXCESS OR OBSOLETE COMPONENT SUPPLY, WHICH COULD ADVERSELY AFFECT OUR GROSS MARGINS

~~The fact that we do not own or operate~~We depend upon the ~~bulk~~development of ~~our manufacturing facilities and that we are reliant on our extended supply chain could have an adverse impact on the supply of our~~new products and onservices, and enhancements to existing products and services, and if we fail to predict and respond to emerging technological trends and customers’ changing needs, our ~~business and operating results:~~



	•		~~Any financial problems of either contract manufacturers or component suppliers could either limit supply or increase costs~~



	•		~~Reservation of manufacturing capacity at our contract manufacturers by other companies, inside or outside of our industry, could either limit supply or increase costs~~



	•		~~Industry consolidation occurring within one or more component supplier markets, such as the semiconductor market, could either limit supply or increase costs~~

A reduction or interruption in supply, including potential disruptions on our global supply chain as a result of the recent coronavirus outbreak; a significant increase in the price of one or more components; a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially adversely affect our business, operating results and ~~financial condition and could materially damage customer relationships. Furthermore, as a result of binding price or purchase commitments with suppliers, we~~market share may be obligated to purchase components at prices that are higher than those available in the current market. In the event that we become committed to purchase components at prices in excess of the current market price when the components are actually used, our gross margins could decrease. We have experienced longer than normal lead times in the past. Although we have generally secured additional supply or taken other mitigation actions when significant disruptions have occurred, if similar situations occur in the future, they could have a material adverse effect on our business, results of operations, and financial condition. See the risk factor above entitled “Our revenue for a particular period is difficult to predict, and a shortfall in revenue may harm our operating results.”

Our growth and ability to meet customer demands depend in part on our ability to obtain timely deliveries of parts from our suppliers and contract manufacturers. We have experienced component shortages in the past, including shortages caused by manufacturing process issues, that have affected our operations. We may in the future experience a shortage of certain component parts as a result of our own manufacturing issues, manufacturing issues at our suppliers or contract manufacturers, capacity problems experienced by our suppliers or contract manufacturers including capacity or cost problems resulting from industry consolidation, or strong demand in the industry for those parts. Growth in the economy is likely to create greater pressures on us and our suppliers to accurately project overall component demand and component demands within specific product categories and to establish optimal component levels and manufacturing capacity, especially for labor-intensive components, components for which we purchase a substantial portion of the supply, or the re-ramping of manufacturing capacity for highly complex products. During periods of shortages or delays the price of components may increase, or the components may not be available at all, and we may also encounter shortages if we do not accurately anticipate our needs. We may not be able to secure enough components at reasonable prices or of acceptable quality to build new products in a timely manner in the quantities or configurations needed. Accordingly, our revenue and gross margins could suffer until other sources can be developed. Our operating results would also be adversely affected if, anticipating greater demand than actually develops, we commit to the purchase of more components than we need, which is more likely to occur in a period of demand uncertainties such as we are currently experiencing. There can be no assurance that we will not encounter these problems in the future. Although in many cases we use standard parts and components for our products, certain components are presently available only from a single source or limited sources, and a global economic downturn and related market uncertainty could negatively impact the availability of components from one or more of these sources, especially during times such as we have recently seen when there are supplier constraints based on labor and other actions taken during economic downturns. We may not be able to diversify sources in a timely manner, which could harm our ability to deliver products to customers and seriously impact present and future sales.

~~We believe that we may be faced with the following challenges in the future:~~ suffer.



	•		~~New markets in which we participate may grow quickly, which may make it difficult to quickly obtain significant component capacity~~



	•		~~As we acquire companies and new technologies, we may be dependent, at least initially, on unfamiliar supply chains or relatively small supply partners~~



	•		~~We face competition for certain components that are supply-constrained, from existing competitors, and companies in other markets~~

Manufacturing capacity and component supply constraints could continue to be significant issues for us. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to improve manufacturing lead-time performance and to help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by us or that establish the parameters defining our requirements. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed. When facing component supply-related challenges we have increased our efforts in procuring components in order to meet customer expectations, which in turn contributes to an increase in purchase commitments. Increases in our purchase commitments to shorten

lead times could also lead to excess and obsolete inventory charges if the demand for our products is less than our expectations. If we fail to anticipate customer demand properly, an oversupply of parts could result in excess or obsolete components that could adversely affect our gross margins. For additional information regarding our purchase commitments with contract manufacturers and suppliers, see Note 14 to the Consolidated Financial Statements.

WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS AND SERVICES, AND ENHANCEMENTS TO EXISTING PRODUCTS AND SERVICES, AND IF WE FAIL TO PREDICT AND RESPOND TO EMERGING TECHNOLOGICAL TRENDS AND CUSTOMERS’ CHANGING NEEDS, OUR OPERATING RESULTS AND MARKET SHARE MAY SUFFER

The markets for our products and services are characterized by rapidly changing technology, evolving industry standards, new product and service introductions, and evolving methods of building and operating networks. Our operating results depend on our ability to develop and introduce new products and services into existing and emerging markets and to reduce the production costs of existing products. If customers do not purchase and/or renew our offerings our business could be harmed. The COVID-19 pandemic may also result in long-term changes in customer needs for our products and services in various sectors, along with IT-related capital spending reductions, or shifts in spending focus, that could materially adversely affect us if we are unable to adjust our product and service offerings to match customer needs.

The process of developing new technology, including intent-based networking, more programmable, flexible and virtual networks, and technology related to other market transitions— such as security, digital transformation and IoT, 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 strategic priorities to developing new products and services before knowing whether our investments will result in products and services 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

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addressing these other transitions that ultimately succeed are based on technology, or an approach to technology, different from ours. In addition, our business could be adversely affected in periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.

We have also been transforming our business to move from selling individual products and services to selling products and services integrated into architectures and solutions, and we are seeking to meet the evolving needs of customers which include offering our products and solutions in the manner in which customers wish to consume them. As a part of this transformation, we continue to make changes to how we are organized and how we build and deliver our technology, including changes in our business models with customers. If our strategy for addressing our customer needs, or the architectures and solutions we develop do not meet those needs, or the changes we are making in how we are organized and how we build and deliver or technology is incorrect or ineffective, our business could be harmed.

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 and services depends on several factors, including proper new product and service definition, component costs, timely completion and introduction of these products and services, differentiation of new products and services from those of our competitors, and market acceptance of these products and services. There can be no assurance that we will successfully identify new product and services opportunities, develop and bring new products and services to market in a timely manner, or achieve market acceptance of our products and services or that products, services and technologies developed by others will not render our products, services or technologies obsolete or noncompetitive. The products and technologies in our other product categories and key priority and 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 and services.

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 RESTRUCTURINGSChanges 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.

We initiated a restructuring plan in the ~~third~~first quarter of fiscal ~~2020.~~2021, which includes a voluntary early retirement program. 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.

OVER THE LONG TERM WE INTEND TO INVEST IN ENGINEERING, SALES, SERVICE AND MARKETING ACTIVITIES, AND THESE INVESTMENTS MAY ACHIEVE DELAYED, OR LOWER THAN EXPECTED, BENEFITS WHICH COULD HARM OUR OPERATING RESULTSOver the long term we intend to invest in engineering, sales, service and marketing activities, and in key priority and growth areas, and these investments may achieve delayed, or lower than expected, benefits which could harm our operating results.

While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related to our engineering, sales, service and marketing functions as we realign and dedicate resources on key priority and growth areas, such as Security and Applications, and we also intend to focus on maintaining leadership in Infrastructure Platforms and in Services. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits, and the return on these investments 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 BUSINESS SUBSTANTIALLY DEPENDS UPON THE CONTINUED GROWTH OF THE INTERNET AND INTERNET-BASED SYSTEMS~~

~~A substantial portion~~

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We have made and expect to continue to make acquisitions that could disrupt our ~~business~~operations and ~~revenue depends on growth and evolution of the Internet, including the continued development of the Internet and the anticipated market transitions, and on the deployment of~~harm our products by customers who depend on such continued growth and evolution. To the extent that an economic slowdown or uncertainty and related reduction in capital spending adversely affect spending on Internet infrastructure, including spending or investment related to anticipated market transitions, we could experience material harm to our business, operating ~~results, and financial condition.~~

Because of the rapid introduction of new products and changing customer requirements related to matters such as cost-effectiveness and security, we believe that there could be performance problems with Internet communications in the future, which could receive a high degree of publicity and visibility. Because we are a large supplier of networking products, our business, operating results, and financial condition may be materially adversely affected, regardless of whether or not these problems are due to the performance of our own products. Such an event could also result in a material adverse effect on the market price of our common stock independent of direct effects on our business.

~~WE HAVE MADE AND EXPECT TO CONTINUE TO MAKE ACQUISITIONS THAT COULD DISRUPT OUR OPERATIONS AND HARM OUR OPERATING RESULTS~~results.

Our growth depends upon market growth, our ability to enhance our existing products, and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions of other companies, product lines, technologies, and personnel. Acquisitions involve numerous risks, including the following:



	•		Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies with large and widespread operations and/or complex products



	•		~~Diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions~~



	•		~~Potential difficulties in completing projects associated with in-process research and development intangibles~~



	•		~~Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions~~



	•		~~Initial dependence on unfamiliar supply chains or relatively small supply partners~~



	•		~~Insufficient revenue to offset increased expenses associated with acquisitions~~



	•		~~The potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans~~

•Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies with large and widespread operations and/or complex products

•Diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions

•Potential difficulties in completing projects associated with in-process research and development intangibles

•Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions

•Initial dependence on unfamiliar supply chains or relatively small supply partners

•Insufficient revenue to offset increased expenses associated with acquisitions

•The potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans

Acquisitions may also cause us to:

•Issue common stock that would dilute our current shareholders’ percentage ownership

•Use a substantial portion of our cash resources, or incur debt

•Significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition

•Assume liabilities

•Record goodwill and intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges

•Incur amortization expenses related to certain intangible assets

•Incur tax expenses related to the effect of acquisitions on our legal structure

•Incur large write-offs and restructuring and other related expenses

•Become subject to intellectual property or other litigation



	•		~~Issue common stock that would dilute our current shareholders’ percentage ownership~~



	•		~~Use a substantial portion of our cash resources, or incur debt~~



	•		~~Significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition~~



	•		~~Assume liabilities~~



	•		~~Record goodwill and intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges~~



	•		~~Incur amortization expenses related to certain intangible assets~~



	•		~~Incur tax expenses related to the effect of acquisitions on our legal structure~~



	•		~~Incur large write-offs and restructuring and other related expenses~~



	•		~~Become subject to intellectual property or other litigation~~

Mergers and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control, and no assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. Prior acquisitions have resulted in a wide range of outcomes, from successful introduction of new products and technologies to a failure to do so. Even when an acquired company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.

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. ~~See the risk factors above, including the risk factor entitled “We depend upon the development of~~

Entrance into new ~~products~~or developing markets exposes us to additional competition and ~~services,~~will likely increase demands on our service and enhancements to existing products and services, 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~~support operations.

As we focus on new market opportunities and key priority and growth areas, 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, entry into other markets has subjected and will subject us to additional risks, particularly to those markets, including the effects of general market conditions and reduced consumer confidence. For example, as we add direct selling capabilities globally to meet changing customer demands, we will face increased legal and regulatory requirements.

~~INDUSTRY CONSOLIDATION MAY LEAD TO INCREASED COMPETITION AND MAY HARM OUR OPERATING RESULTS~~

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Industry consolidation may lead to increased competition and may harm our operating results.

There ~~has been~~is a continuing trend toward industry consolidation in our ~~markets for several years.~~markets. 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~~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 pre-shipment 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. From time to time, we have had to replace certain components and provide remediation in response to the discovery of defects or bugs in products that we had shipped. There can be no assurance that such remediation, depending on the product involved, would not have a material impact. An inability to cure a product defect could result in the failure of a product line, temporary or permanent withdrawal from a product or market, damage to our reputation, inventory costs, or product reengineering expenses, any of which could have a material impact on our revenue, margins, and net income. ~~For example, in the second quarter of fiscal 2017 we recorded a charge to product cost of sales of $125 million related~~

Due to the ~~expected remediation costs for anticipated failures in future periods of a widely-used component sourced from a third party which is included in several~~global nature of our ~~products,~~operations, political or economic changes or other factors in a specific country or region could harm our operating results and in the second quarter of fiscal 2014 we recorded a pre-tax charge of $655 million related to the expected remediation costs for certain products sold in prior fiscal years containing memory components manufactured by a single supplier between 2005 and 2010.

~~DUE TO THE GLOBAL NATURE OF OUR OPERATIONS, POLITICAL OR ECONOMIC CHANGES OR OTHER FACTORS IN A SPECIFIC COUNTRY OR REGION COULD HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION~~financial condition.

We conduct significant sales and customer support operations in countries around the world. As such, our growth depends in part on our increasing sales into emerging countries. We also depend on non-U.S. operations of our contract manufacturers, component suppliers and distribution partners. Our business in emerging countries in the aggregate experienced a decline in orders in the first half of fiscal ~~2020,~~2021 and in certain prior periods. We continue to assess the sustainability of any improvements in our business in these countries and there can be no assurance that our investments in these countries will be successful. Our future results could be materially adversely affected by a variety of political, economic or other factors relating to our operations inside and outside the United States, any or all of which could have a material adverse effect on our operating results and financial condition, including the following: impacts from global central bank monetary policy; issues related to the political relationship between the United States and other countries that can affect regulatory matters, affect the willingness of customers in those countries to purchase products from companies headquartered in the United States or affect our ability to procure components if a government body were to deny us access to those components; government-related disruptions or shutdowns; ~~and~~ the challenging and inconsistent global macroeconomic ~~environment, any~~environment; foreign currency exchange rates; political or ~~all~~social unrest; economic instability or weakness or natural disasters in a specific country or region, including the current economic challenges in China and global economic ramifications of Chinese economic difficulties; instability as a result of Brexit; environmental protection regulations, trade protection measures such as tariffs, and other legal and regulatory requirements, some of which may affect our ability to import our products to, export our products from, or sell our products in various countries or affect our ability to procure components; political considerations that affect service provider and government spending patterns; health or similar issues, including pandemics or epidemics such as the COVID-19 pandemic which could ~~have a material~~continue to affect customer purchasing decisions; difficulties in staffing and managing international operations; and adverse ~~effect~~tax consequences, including imposition of withholding or other taxes on our ~~operating results and financial condition, including, among others, the following:~~global operations.



	•		~~Foreign currency exchange rates~~



	•		~~Political or social unrest~~



	•		Economic instability or weakness or natural disasters in a specific country or region, including the current economic challenges in China and global economic ramifications of Chinese economic difficulties; instability as a result of Brexit; environmental protection measures, trade protection measures such as tariffs, and other legal and regulatory requirements, some of which may affect our ability to import our products, to export our products from, or sell our products in various countries or affect our ability to procure components



	•		~~Political considerations that affect service provider and government spending patterns~~



	•		~~Health or similar issues, including pandemics or epidemics such as the recent coronavirus outbreak which could affect customer purchasing decisions~~



	•		~~Difficulties in staffing and managing international operations~~



	•		~~Adverse tax consequences, including imposition of withholding or other taxes on our global operations~~

~~WE ARE EXPOSED TO THE CREDIT RISK OF SOME OF OUR CUSTOMERS AND TO CREDIT EXPOSURES IN WEAKENED MARKETS, WHICH COULD RESULT IN MATERIAL LOSSES~~We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could result in material losses.

Most of our sales are on an open credit basis, with typical payment terms of 30 days in the United States and, because of local customs or conditions, longer in some markets outside the United States. We monitor individual customer payment capability in granting such open credit arrangements, seek to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. Beyond our open credit arrangements, we have also experienced demands for customer financing and facilitation of leasing arrangements.

~~We believe customer financing is a competitive factor in obtaining business, particularly in serving customers involved in significant infrastructure projects.~~ Our loan financing arrangements may include not only financing the acquisition of our products and services but also providing additional funds for other costs associated with network installation and integration of our products and services.

Our exposure to the credit risks relating to our financing activities ~~described above~~ may increase if our customers are adversely affected by a global economic downturn or periods of economic uncertainty. ~~Although we have programs in place that are designed to monitor and mitigate the associated risk, including monitoring of particular risks in certain geographic areas, there~~There can be no assurance that ~~such~~ programs we have in place to monitor and mitigate credit risks will be ~~effective in reducing our credit risks.~~

effective. In the past, there have been significant bankruptcies among customers both on open credit and with loan or lease financing

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arrangements, particularly among Internet businesses and service providers, causing us to incur economic or financial losses. There can be no assurance that additional losses will not be incurred. Although these losses have not been material to date, future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition. A portion of our sales is derived through our distributors. These distributors are generally given business terms that allow them to return a portion of inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. We maintain estimated accruals and allowances for such business terms. However, distributors tend to have more limited financial resources than other resellers and end-user customers and therefore represent potential sources of increased credit risk, because they may be more likely to lack the reserve resources to meet payment obligations. Additionally, to the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.

~~WE ARE EXPOSED TO FLUCTUATIONS IN THE MARKET VALUES OF OUR PORTFOLIO INVESTMENTS AND IN INTEREST RATES; IMPAIRMENT OF OUR INVESTMENTS COULD HARM OUR EARNINGS~~We are exposed to fluctuations in the market values of our portfolio investments and in interest rates; impairment of our investments could harm our earnings.

We maintain an investment portfolio of various holdings, types, and maturities. Our portfolio includes available-for-sale debt investments and equity investments, the values of which are subject to market price volatility. If such investments suffer market price declines, as we experienced with some of our investments in the past, we may recognize in earnings the decline in the fair value of our investments below their cost ~~basis when the decline is judged to be other than temporary.~~basis. Our non-marketable equity and other investments are subject to risk of loss of investment capital. These investments are inherently risky because the markets for the technologies or products they have under development are typically in the early stages and may never materialize. We could lose our entire investment in these companies. For information regarding the market risks associated with the fair value of portfolio investments and interest rates, refer to the section titled “Quantitative and Qualitative Disclosures About Market Risk.”

~~WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS AND CASH FLOWS~~We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our financial results and cash flows. Historically, our primary exposures have related to nondollar-denominated sales in Japan, Canada, and Australia and certain nondollar-denominated operating expenses and service cost of sales in Europe, Latin America, and Asia, where we sell primarily in U.S. dollars. Additionally, we have exposures torates, including emerging market currencies which can have extreme currency volatility. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside the United States where we sell in dollars and a weakened dollar could increase the cost of local operating expenses and procurement of raw materials to the extent that we must purchase components in foreign currencies. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our financial results and cash flows.

Failure to retain and recruit key personnel would harm our ability to meet key objectives.

Our success has always depended in large part on our ability to attract and retain highly skilled technical, managerial, sales, and marketing personnel. Competition for these personnel is intense, especially in the Silicon Valley area of Northern California. Stock incentive plans are designed to reward employees for their long-term contributions and provide incentives for them to remain with us. Volatility or lack of positive performance in our stock price or equity incentive awards, or changes to our overall compensation program, including our stock incentive program, resulting from the management of share dilution and share-based compensation expense or otherwise, may also adversely affect our ability to retain key employees. As a result of one or more of these factors, we may increase our hiring in geographic areas outside the United States, which could subject us to additional geopolitical and exchange rate risk. The loss of services of any of our key personnel; the inability to retain and attract qualified personnel in the future; or delays in hiring required personnel, particularly engineering and sales personnel, could make it difficult to meet key objectives, such as timely and effective product introductions. In addition, companies in our industry whose employees accept positions with competitors frequently claim that competitors have engaged in improper hiring practices. We have received these claims in the past and may receive additional claims to this effect in the future.

Adverse resolution of litigation or governmental investigations may harm our operating results or financial condition.

We ~~enter into~~are a party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of lawsuits or governmental investigations could have a material adverse effect on our business, operating results, or financial condition. For additional information regarding certain of the matters in which we are involved, see Note 14 to the Consolidated Financial Statements, subsection (f) “Legal Proceedings.”

Our operating results may be adversely affected and damage to our reputation may occur due to production and sale of counterfeit versions of our products.

As is the case with leading products around the world, our products are subject to efforts by third parties to produce counterfeit versions of our products. While we work diligently with law enforcement authorities in various countries to block the manufacture of counterfeit goods and to interdict their sale, and to detect counterfeit products in customer networks, and have succeeded in prosecuting counterfeiters and their distributors, resulting in fines, imprisonment and restitution to us, there can be no guarantee that such efforts will succeed. While counterfeiters often aim their sales at customers who might not have otherwise purchased our products due to lack of verifiability of origin and service, such counterfeit sales, to the extent they replace otherwise legitimate sales, could adversely affect our operating results.

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Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes to foreign-derived intangible income, global intangible low-tax income and base erosion and anti-abuse tax laws, regulations, or interpretations thereof; by expiration of or lapses in tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign ~~exchange forward contracts~~subsidiaries, the deductibility of expenses attributable to foreign income, and ~~options~~the foreign tax credit rules. Significant judgment is required to ~~reduce~~determine the ~~short-term impact~~recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of ~~foreign currency fluctuations on certain foreign currency receivables, investments, and payables. In addition, we periodically hedge anticipated foreign currency cash flows. Our attempts~~37 countries, including the United States, has made changes to ~~hedge against~~numerous long-standing tax principles. There can be no assurance that these ~~risks may result in~~changes, once adopted by countries, will not have an adverse impact on our ~~net income.~~provision for income taxes. Further, as a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries was subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

~~OUR PROPRIETARY RIGHTS MAY PROVE DIFFICULT TO ENFORCE~~Our business and operations are especially subject to the risks of earthquakes, floods, and other natural catastrophic events.

Our corporate headquarters, including certain of our research and development operations are located in the Silicon Valley area of Northern California, a region known for seismic activity. Additionally, a certain number of our facilities are located near rivers that have experienced flooding in the past. Also certain of our suppliers and logistics centers are located in regions that have been or may be affected by earthquake, tsunami and flooding activity which in the past has disrupted, and in the future could disrupt, the flow of components and delivery of products. A significant natural disaster, such as an earthquake, a hurricane, volcano, or a flood, could have a material adverse impact on our business, operating results, and financial condition.

Terrorism and other events may harm our business, operating results and financial condition.

The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries and create further uncertainties or otherwise materially harm our business, operating results, and financial condition. Likewise, events such as loss of infrastructure and utilities services such as energy, transportation, or telecommunications could have similar negative impacts. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the manufacture or shipment of our products, our business, operating results, and financial condition could be materially and adversely affected.

There can be no assurance that our operating results and financial condition will not be adversely affected by our incurrence of debt.

As of the end of the second quarter of fiscal 2021, we have senior unsecured notes outstanding in an aggregate principal amount of $14.5 billion that mature at specific dates from calendar year 2021 through 2040. We have also established a commercial paper program under which we may issue short-term, unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $10.0 billion, and we had no commercial paper notes outstanding under this program as of January 23, 2021. There can be no assurance that our incurrence of this debt or any future debt will be a better means of providing liquidity to us than would our use of our existing cash resources. Further, we cannot be assured that our maintenance of this indebtedness or incurrence of future indebtedness will not adversely affect our operating results or financial condition. In addition, changes by any rating agency to our credit rating can negatively impact the value and liquidity of both our debt and equity securities, as well as the terms upon which we may borrow under our commercial paper program or future debt issuances.

Risks Related to Intellectual Property

Our proprietary rights may prove difficult to enforce.

We generally rely on patents, copyrights, trademarks, and trade secret laws to establish and maintain proprietary rights in our technology and products. Although we have been issued numerous patents and other patent applications are currently pending, there can be no assurance that any of these patents or other proprietary rights will not be challenged, invalidated, or circumvented or that our rights will, in fact, provide competitive advantages to us. Furthermore, many key aspects of

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networking technology are governed by industrywide standards, which are usable by all market entrants. In addition, there can be no assurance that patents will be issued from pending applications or that claims allowed on any patents will be sufficiently broad to protect our technology. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. The outcome of any actions taken in these foreign countries may be different than if such actions were determined under the laws of the United States. Although we are not dependent on any individual patents or group of patents for particular segments of the business for which we compete, if we are unable to protect our proprietary rights to the totality of the features (including aspects of products protected other than by patent rights) in a market, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to create innovative products that have enabled us to be successful.

~~WE MAY BE FOUND TO INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS~~We may be found to infringe on intellectual property rights of others.

Third parties, including customers, have in the past and may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us. These assertions have increased over time as a result of our growth and the general increase in the pace of patent claims assertions, particularly in the United States. Because of the existence of a large number of patents in the networking field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others. The asserted claims and/or initiated litigation can include claims against us or our manufacturers, suppliers, or customers, alleging infringement of their proprietary rights with respect to our existing or future products or components of those products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made against us by any third party is successful, if we are required to indemnify a customer with respect to a claim against the customer, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected. For additional information regarding our indemnification obligations, see Note 14(e) to the Consolidated Financial Statements contained in this report.

Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks. Further, in the past, third parties have made infringement and similar claims after we have acquired technology that had not been asserted prior to our acquisition.

~~WE RELY ON THE AVAILABILITY OF THIRD-PARTY LICENSES~~We rely on the availability of third-party licenses.

Many of our products are designed to include software or other intellectual property licensed from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of these products. There can be no assurance that the necessary licenses would be available on acceptable terms, if at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse effect on our business, operating results, and financial condition. Moreover, the inclusion in our products of software or other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products.

~~OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED AND DAMAGE TO OUR REPUTATION MAY OCCUR DUE TO PRODUCTION AND SALE OF COUNTERFEIT VERSIONS OF OUR PRODUCTS~~Risks Related to Cybersecurity and Regulations

~~As is the case with leading products around the world,~~Cyber-attacks, data breaches or malware may disrupt our ~~products are subject to efforts by third parties to produce counterfeit versions of~~operations, harm our ~~products. While we work diligently with law enforcement authorities in various countries to~~

block the manufacture of counterfeit goods and to interdict their sale, and to detect counterfeit products in customer networks, and have succeeded in prosecuting counterfeiters and their distributors, resulting in fines, imprisonment and restitution to us, there can be no guarantee that such efforts will succeed. While counterfeiters often aim their sales at customers who might not have otherwise purchased our products due to lack of verifiability of origin and service, such counterfeit sales, to the extent they replace otherwise legitimate sales, could adversely affect our operating results.

~~OUR OPERATING RESULTS AND FUTURE PROSPECTS COULD BE MATERIALLY HARMED BY UNCERTAINTIES OF REGULATION OF THE INTERNET~~

Currently, few laws or regulations apply directly to access or commerce on the Internet. We could be materially adversely affected by regulation of the Internet and Internet commerce in any country where we operate. Such regulations could include matters such as voice over the Internet or using IP, encryption technology, sales or other taxes on Internet product or service sales, and access charges for Internet service providers. The adoption of regulation of the Internet and Internet commerce could decrease demand for our products and, at the same time, increase the cost of selling our products, which could have a material adverse effect on our business, operating results, and financial condition.

~~CHANGES IN TELECOMMUNICATIONS REGULATION AND TARIFFS COULD HARM OUR PROSPECTS AND FUTURE SALES~~

Changes in telecommunications requirements, or regulatory requirements in other industries in which we operate, in the United States or other countries could affect the sales of our products. In particular, we believe that there may be future changes in U.S. telecommunications regulations that could slow the expansion of the service providers’ network infrastructures and materially adversely affect our business, operating results and financial condition, ~~including “net neutrality” rules to the extent they impact decisions~~and damage our reputation, and cyber-attacks or data breaches on ~~investment~~our customers’ networks, or in ~~network infrastructure.~~

~~Future changes in tariffs~~cloud-based services provided by ~~regulatory agencies~~ or application of tariff requirements to currently untariffed services could affect the sales of our products for certain classes of customers. Additionally, in the United States, our products must comply with various requirements and regulations of the Federal Communications Commission and other regulatory authorities. In countries outside of the United States, our products must meet various requirements of local telecommunications and other industry authorities. Changes in tariffs or failureenabled by us, ~~to obtain timely approval~~could result in claims of ~~products could have a material adverse effect on~~liability against us, damage our ~~business, operating results, and financial condition.~~

~~FAILURE TO RETAIN AND RECRUIT KEY PERSONNEL WOULD HARM OUR ABILITY TO MEET KEY OBJECTIVES~~

Our success has always depended in large part on our ability to attract and retain highly skilled technical, managerial, sales, and marketing personnel. Competition for these personnel is intense, especially in the Silicon Valley area of Northern California. Stock incentive plans are designed to reward employees for their long-term contributions and provide incentives for them to remain with us. Volatility or lack of positive performance in our stock price or equity incentive awards, or changes to our overall compensation program, including our stock incentive program, resulting from the management of share dilution and share-based compensation expensereputation or otherwise ~~may also adversely affect~~harm our ability to retain key employees. As a result of one or more of these factors, we may increase our hiring in geographic areas outside the United States, which could subject us to additional geopolitical and exchange rate risk. The loss of services of any of our key personnel; the inability to retain and attract qualified personnel in the future; or delays in hiring required personnel, particularly engineering and sales personnel, could make it difficult to meet key objectives, such as timely and effective product introductions. In addition, companies in our industry whose employees accept positions with competitors frequently claim that competitors have engaged in improper hiring practices. We have received these claims in the past and may receive additional claims to this effect in the future.

~~ADVERSE RESOLUTION OF LITIGATION OR GOVERNMENTAL INVESTIGATIONS MAY HARM OUR OPERATING RESULTS OR FINANCIAL CONDITION~~

~~We are a party to lawsuits in the normal course of our~~ business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. For example, Brazilian authorities have investigated our Brazilian subsidiary and certain of its former employees, as well as a Brazilian importer of our products, and its affiliates and employees, relating to alleged evasion of import taxes and alleged improper transactions involving the subsidiary and the importer. Brazilian tax authorities have assessed claims against our Brazilian subsidiary based on a theory of joint liability with the Brazilian importer for import taxes, interest, and penalties. The asserted claims by Brazilian federal tax authorities which remain are for calendar years 2003 through 2007, and the asserted claims by the tax authorities from the state of Sao Paulo are for calendar years 2005 through 2007. The total remaining asserted claims by Brazilian state and federal tax authorities aggregate to $0.2 billion for the alleged evasion of import and other taxes, $0.9 billion for interest, and $0.5 billion for various penalties, all determined using an exchange rate as of January 25, 2020. We have completed a thorough review of the matters and believe the asserted claims against our Brazilian subsidiary are without merit, and we are defending the claims

vigorously. While we believe there is no legal basis for the alleged liability, due to the complexities and uncertainty surrounding the judicial process in Brazil and the nature of the claims asserting joint liability with the importer, we are unable to determine the likelihood of an unfavorable outcome against our Brazilian subsidiary and are unable to reasonably estimate a range of loss, if any. We do not expect a final judicial determination for several years. An unfavorable resolution of lawsuits or governmental investigations could have a material adverse effect on our business, operating results, or financial condition. For additional information regarding certain of the matters in which we are involved, see Note 14 to the Consolidated Financial Statements, subsection (f) “Legal Proceedings.”

~~CHANGES IN OUR PROVISION FOR INCOME TAXES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR INCOME TAX RETURNS COULD ADVERSELY AFFECT OUR RESULTS~~

Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes to domestic manufacturing deduction, foreign-derived intangible income, global intangible low-tax income and base erosion and anti-abuse tax laws, regulations, or interpretations thereof; by expiration of or lapses in tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax credit rules. Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of 36 countries, including the United States, has made changes to numerous long-standing tax principles. There can be no assurance that these changes, once adopted by countries, will not have an adverse impact on our provision for income taxes. Further, as a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

~~OUR BUSINESS AND OPERATIONS ARE ESPECIALLY SUBJECT TO THE RISKS OF EARTHQUAKES, FLOODS, AND OTHER NATURAL CATASTROPHIC EVENTS~~

CYBER-ATTACKS, DATA BREACHES OR MALWARE MAY DISRUPT OUR OPERATIONS, HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION, AND DAMAGE OUR REPUTATION, AND CYBER-ATTACKS OR DATA BREACHES ON OUR CUSTOMERS’ NETWORKS, OR IN CLOUD-BASED SERVICES PROVIDED BY OR ENABLED BY US, COULD RESULT IN CLAIMS OF LIABILITY AGAINST US, DAMAGE OUR REPUTATION OR OTHERWISE HARM OUR BUSINESS

Despite our implementation of security measures, the products and services we sell to customers, and our servers, data centers and the cloud-based solutions on which our data, and data of our customers, suppliers and business partners are stored, are vulnerable to cyber-attacks, data breaches, malware, and similar disruptions from unauthorized access or tampering by malicious actors or inadvertent error. Any such event could compromise our products, services, and networks or those of our customers, and the information stored on our systems or those of our customers could be improperly accessed, processed, disclosed, lost or stolen, which could subject us to liability to our customers, suppliers, business partners and others, give rise to legal/regulatory action, and could have a material adverse effect on our business, operating results, and financial condition and may cause damage to our reputation. Efforts to limit the ability of malicious actors to disrupt the operations of the Internet or

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undermine our own security efforts may be costly to implement and meet with resistance, and may not be successful. Breaches of security in our customers’ networks, or in cloud-based services provided by or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, could result in claims of liability against us, damage our reputation or otherwise harm our business.

Vulnerabilities and critical security defects, prioritization decisions regarding remedying vulnerabilities or security defects, failure of third party providers to remedy vulnerabilities or security defects, or customers not deploying security releases or deciding not to upgrade products, services or solutions could result in claims of liability against us, damage our reputation or otherwise harm our business.

VULNERABILITIES AND CRITICAL SECURITY DEFECTS, PRIORITIZATION DECISIONS REGARDING REMEDYING VULNERABILITIES OR SECURITY DEFECTS, FAILURE OF THIRD PARTY PROVIDERS TO REMEDY VULNERABILITIES OR SECURITY DEFECTS, OR CUSTOMERS NOT DEPLOYING SECURITY RELEASES OR DECIDING NOT TO UPGRADE PRODUCTS, SERVICES OR SOLUTIONS COULD RESULT IN CLAIMS OF LIABILITY AGAINST US, DAMAGE OUR REPUTATION OR OTHERWISE HARM OUR BUSINESS

The products and services we sell to customers, and our cloud-based solutions, inevitably contain vulnerabilities or critical security defects which have not been remedied and cannot be disclosed without compromising security. We may also make prioritization decisions in determining which vulnerabilities or security defects to fix, and the timing of these fixes, which could result in an exploit which compromises security. Customers also need to test security releases before they can be deployed which can delay implementation. In addition, we rely on third-party providers of software and cloud-based service and we cannot control the rate at which they remedy vulnerabilities. Customers may also not deploy a security release, or decide not to upgrade to the latest versions of our products, services or cloud-based solutions containing the release, leaving them vulnerable. Vulnerabilities and critical security defects, prioritization errors in remedying vulnerabilities or security defects, failure of third-party providers to remedy vulnerabilities or security defects, or customers not deploying security releases or deciding not to upgrade products, services or solutions could result in claims of liability against us, damage our reputation or otherwise harm our business.

~~TERRORISM AND OTHER EVENTS MAY HARM OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION~~

The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries and create further uncertainties or otherwise materially harm our business, operating results, and financial condition. Likewise, events such as loss of infrastructure and utilities services such as energy, transportation, or telecommunications could have similar negative impacts. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the manufacture or shipment of our products, ourOur business, operating results and financial condition could be materially harmed by regulatory uncertainty applicable to our products and ~~adversely affected.~~services.

~~IF WE DO NOT SUCCESSFULLY MANAGE OUR STRATEGIC ALLIANCES, WE MAY NOT REALIZE THE EXPECTED BENEFITS FROM SUCH ALLIANCES AND WE MAY EXPERIENCE INCREASED COMPETITION OR DELAYS IN PRODUCT DEVELOPMENT~~

~~We have several strategic alliances with large and complex organizations and other companies with~~Changes in regulatory requirements applicable to the industries in which we ~~work to offer complementary~~operate, in the United States and in other countries, could materially affect the sales of our products and services. In particular, changes in telecommunications regulations could impact our service provider customers’ purchase of our products and offers, and they could also impact sales of our own regulated offers. In addition, evolving legal requirements restricting or controlling the collection, processing, or cross-border transmission of data, including regulation of cloud-based services, could materially affect our customers’ ability to use, and our ability to sell, our products and offers. Additional areas of uncertainty that could impact sales of our products and offers include laws and regulations related to encryption technology, environmental sustainability, export control, product certification, and national security controls applicable to our supply chain. Changes in ~~the past~~regulatory requirements in these areas could have ~~established~~ a ~~joint venture~~material adverse effect on our business, operating results, and financial condition.

Risks Related to ~~market services associated with our Cisco Unified Computing System products. These arrangements are generally limited to specific projects, the goal~~Ownership of which is generally to facilitate product compatibility and adoption of industry standards. There can be no assurance we will realize the expected benefits from these strategic alliances or from the joint venture. If successful, these relationshipsOur Stock

Our stock price may be mutually beneficial and result in industry growth. However, alliances carry an element of risk because, in most cases, we must compete in some business areas with a company with which we have a strategic alliance and, at the same time, cooperate with that company in other business areas. Also, if these companies fail to perform or if these relationships fail to materialize as expected, we could suffer delays in product development or other operational difficulties. Joint ventures can be difficult to manage, given the potentially different interests of joint venture partners.

~~OUR STOCK PRICE MAY BE VOLATILE~~volatile.

Historically, our common stock has experienced substantial price volatility, particularly as a result of variations between our actual financial results and the published expectations of analysts and as a result of announcements by our competitors and us. Furthermore, speculation in the press or investment community about our strategic position, financial condition, results of operations, business, security of our products, or significant transactions can cause changes in our stock price. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of these companies. These factors, as well as general economic and political conditions and the announcement of proposed and completed acquisitions or other significant transactions, or any difficulties associated with such transactions, by us or our current or potential competitors, may materially adversely affect the market price of our common stock in the future. Additionally, volatility, lack of positive performance in our stock price or changes to our overall compensation program, including our stock incentive program, may adversely affect our ability to retain key employees, virtually all of whom are compensated, in part, based on the performance of our stock price.

~~THERE CAN BE NO ASSURANCE THAT OUR OPERATING RESULTS AND FINANCIAL CONDITION WILL NOT BE ADVERSELY AFFECTED BY OUR INCURRENCE OF DEBT~~

As of the end of the second quarter of fiscal 2020, we have senior unsecured notes outstanding in an aggregate principal amount of $16.0 billion that mature at specific dates from calendar year 2020 through 2040. We have also established a commercial paper program under which we may issue short-term, unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $10.0 billion, and we had no commercial paper notes outstanding under this program as of January 25, 2020. The outstanding senior unsecured notes bear fixed-rate interest payable semiannually. The fair value of the long-term debt is subject to market interest rate volatility. The instruments governing the senior unsecured notes contain certain covenants applicable to us and our wholly-owned subsidiaries that may adversely affect our ability to incur certain liens or engage in certain types of sale and leaseback transactions. In addition, we will be required to have available in the United States sufficient cash to service the interest on our debt and repay all of our notes on maturity. There can be no assurance that our incurrence of this debt or any future debt will be a better means of providing liquidity to us than would our use of our existing cash resources. Further, we cannot be assured that our maintenance of this indebtedness or incurrence of future indebtedness will not adversely affect our operating results or financial condition. In addition, changes by any rating agency to our credit rating can negatively impact the value and liquidity of both our debt and equity securities, as well as the terms upon which we may borrow under our commercial paper program or future debt issuances.

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Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds


~~(a)~~	~~None.~~


~~(b)~~	~~None.~~


~~(c)~~	~~Issuer Purchases of Equity Securities (in millions, except per-share amounts):~~

(a)None.

Period
Total
Number of
Shares
Purchased

Average Price Paid
per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Approximate Dollar Value of Shares
That May Yet Be Purchased
Under the Plans or Programs
October 27, 2019 to November 23, 2019 5
$ 46.72
5
$ 12,438
November 24, 2019 to December 21, 2019 6
$ 45.23
6
$ 12,153
December 22, 2019 to January 25, 2020 7
$ 48.05
7
$ 11,822
Total 18
$ 46.71
18

(b)None.

(c)Issuer Purchases of Equity Securities (in millions, except per-share amounts):


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
October 25, 2020 to November 21, 2020	5	$	38.36	5	$	9,854
November 22, 2020 to December 19, 2020	6	$	43.85	6	$	9,574
December 20, 2020 to January 23, 2021	8	$	44.86	8	$	9,240
Total	19	$	42.82	19

On September 13, 2001, we announced that our Board of Directors had authorized a stock repurchase program. The remaining authorized amount for stock repurchases under this program ~~including the additional authorization,~~ is approximately ~~$11.8~~$9.2 billion with no termination date.

For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of shares withheld to meet applicable tax withholding requirements. Although these withheld shares are not issued or considered common stock repurchases under our stock repurchase program and therefore are not included in the preceding table, they are treated as common stock repurchases in our financial statements as they reduce the number of shares that would have been issued upon vesting.



Item 3.			Defaults Upon Senior Securities

None.



Item 4.			Mine Safety Disclosures

Not applicable.



Item 5.			Other Information

None.

Table of Contents



Item 6.			Exhibits

The following documents are filed as exhibits to this report:

Exhibit Number

Exhibit Description

Incorporated by Reference

Filed Herewith

Form

File No.

Exhibit

Filing Date

2.1

Agreement and Plan of Merger, dated as of January 25, 2021 by and between Cisco Systems, Inc., a California corporation, and Cisco Systems (DE), Inc., a Delaware corporation

8-K12B

001-39940

2.1

1/25/2021

3.1

Amended and Restated Certificate of Incorporation of Cisco Systems, Inc., as currently in effect

8-K12B

001-39940

3.1

1/25/2021

3.2

Amended and Restated Bylaws of Cisco Systems, Inc., as currently in effect

8-K12B

001-39940

3.2

1/25/2021

4.1

First Supplemental Indenture, dated January 25, 2021 to the Indenture, dated February 17, 2009, between Cisco Systems, Inc. and the Bank of New York Mellon Trust Company, N.A., as trustee

4.2

First Supplemental Indenture, dated January 25, 2021 to the Indenture, dated November 17, 2009, between Cisco Systems, Inc. and the Bank of New York Mellon Trust Company, N.A., as trustee

4.3

First Supplemental Indenture, dated January 25, 2021 to the Indenture, dated March 3, 2014, between the Company and The Bank of New York Mellon Trust Company

10.1*

Letter Agreement by and between Cisco Systems, Inc. and R. Scott Herren

8-K

000-18225

10.1

11/13/2020

10.2*

Transition Agreement by and between Cisco Systems, Inc. and Kelly A. Kramer

8-K

000-18225

10.2

11/13/2020

10.3

First Amendment to Amended and Restated Credit Agreement and Consent, dated as of January 25, 2021, by and among Cisco Systems, Inc., the Lenders party thereto, and Bank of America, N.A., as Administrative Agent

10.4*

Form of Indemnity Agreement

8-K12B

001-39940

10.1

1/25/2021

10.5*

Cisco Systems, Inc. 2005 Stock Incentive Plan (including related form agreements)

10.6*

Cisco Systems, Inc. Deferred Compensation Plan, as amended

10.7*

Cisco Systems, Inc. Employee Stock Purchase Plan

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1

Section 1350 Certification of Principal Executive Officer

32.2

Section 1350 Certification of Principal Financial Officer

101.INS

Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Table of Contents

Exhibit Number

Exhibit Description

Incorporated by Reference

Filed Herewith

Form

File No.

Exhibit

Filing Date

~~31.1~~101.CAL

~~Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer~~

~~31.2~~

~~Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer~~

~~32.1~~

~~Section 1350 Certification of Principal Executive Officer~~

~~32.2~~

~~Section 1350 Certification of Principal Financial Officer~~

~~101.INS~~

~~XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the~~ Inline ~~XBRL document.~~

~~101.SCH~~

~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			Indicates a management contract or compensatory plan or arrangement.

Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cisco Systems, Inc.

Date:

February ~~18, 2020~~16, 2021

/S/ ~~Kelly A. Kramer~~R. Scott Herren

~~Kelly A. Kramer~~

R. Scott Herren
Executive Vice President and

Chief Financial Officer

(Principal Financial Officer and duly authorized signatory)


Three Months Ended January 23, 2021	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at October 24, 2020	4,222	$	41,360	$	(2,756)	(447)		$	38,157
Net income				2,545				2,545
Other comprehensive income						229		229
Issuance of common stock	24	305						305
Repurchase of common stock	(19)	(183)		(618)				(801)
Shares repurchased for tax withholdings on vesting of restricted stock units	(6)	(228)						(228)
Cash dividends declared ($0.36 per common share)				(1,522)				(1,522)
Share-based compensation		436						436
Balance at January 23, 2021	4,221	$	41,690	$	(2,351)	$	(218)	$	39,121


Three Months Ended January 25, 2020	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity			Three Months Ended January 25, 2020	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
BALANCE AT OCTOBER 26, 2019	4,241		$	40,321		$	(5,083	)	$	(815	)	$	34,423
Balance at October 26, 2019															Balance at October 26, 2019	4,241	$	40,321	$	(5,083)	$	(815)	$	34,423
Net income						2,878						2,878			Net income				2,878				2,878
Other comprehensive income									115			115			Other comprehensive income						115		115
Issuance of common stock	23		332									332			Issuance of common stock	23	332						332
Repurchase of common stock	(18	)	(177		)	(693		)				(870		)	Repurchase of common stock	(18)	(177)		(693)				(870)
Shares repurchased for tax withholdings on vesting of restricted stock units	(5	)	(243		)							(243		)	Shares repurchased for tax withholdings on vesting of restricted stock units	(5)	(243)						(243)
Cash dividends declared ($0.35 per common share)						(1,486		)				(1,486		)	Cash dividends declared ($0.35 per common share)				(1,486)				(1,486)
Share-based compensation			384									384			Share-based compensation		384						384
BALANCE AT JANUARY 25, 2020	4,241		$	40,617		$	(4,384	)	$	(700	)	$	35,533
Balance at January 25, 2020															Balance at January 25, 2020	4,241	$	40,617	$	(4,384)	$	(700)	$	35,533



Three Months Ended January 26, 2019	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
BALANCE AT OCTOBER 27, 2018	4,517		$	41,897		$	3,169		$	(1,218	)	$	43,848
Net income						2,822						2,822
Other comprehensive income									108			108
Issuance of common stock	22		304									304
Repurchase of common stock	(111	)	(1,033		)	(3,983		)				(5,016		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(4	)	(196		)							(196		)
Cash dividends declared ($0.33 per common share)						(1,470		)				(1,470		)
Share-based compensation			389									389
BALANCE AT JANUARY 26, 2019	4,424		$	41,361		$	538		$	(1,110	)	$	40,789



Six Months Ended January 26, 2019	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
BALANCE AT JULY 28, 2018	4,614		$	42,820		$	1,233		$	(849	)	$	43,204
Net income						6,371						6,371
Other comprehensive loss									(93		)	(93		)
Issuance of common stock	41		312									312
Repurchase of common stock	(220	)	(2,049		)	(7,993		)				(10,042		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(11	)	(514		)							(514		)
Cash dividends declared ($0.66 per common share)						(2,970		)				(2,970		)
Effect of adoption of accounting standards						3,897			(168		)	3,729
Share-based compensation			792									792
BALANCE AT JANUARY 26, 2019	4,424		$	41,361		$	538		$	(1,110	)	$	40,789


	January 23, 2021
1 to 4	$	426
5 to 6	783
7 and Higher	98
Total	$	1,307


Six Months Ended January 23, 2021	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 25, 2020	4,237	$	41,202	$	(2,763)	$	(519)	$	37,920
Net income				$	4,719			4,719
Other comprehensive income						301		301
Issuance of common stock	31	306						306
Repurchase of common stock	(39)	(375)		(1,226)				(1,601)
Shares repurchased for tax withholdings on vesting of restricted stock units	(8)	(317)						(317)
Cash dividends declared ($0.72 per common share)				(3,043)				(3,043)
Effect of adoption of accounting standard				(38)				(38)
Share-based compensation		874						874
Balance at January 23, 2021	4,221	$	41,690	$	(2,351)	$	(218)	$	39,121


Six Months Ended January 25, 2020	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 27, 2019	4,250	$	40,266	$	(5,903)	$	(792)	$	33,571
Net income				5,804				5,804
Other comprehensive income						92		92
Issuance of common stock	34	334						334
Repurchase of common stock	(34)	(325)		(1,313)				(1,638)
Shares repurchased for tax withholdings on vesting of restricted stock units	(9)	(437)						(437)
Cash dividends declared ($0.70 per common share)				(2,972)				(2,972)
Share-based compensation		779						779
Balance at January 25, 2020	4,241	$	40,617	$	(4,384)	$	(700)	$	35,533


~~(b)~~	~~Recent Accounting Standards or Updates Not Yet Effective~~



	Purchase Consideration		Net Tangible Assets Acquired (Liabilities Assumed)			Purchased Intangible Assets		Goodwill
Total acquisitions (four in total)	$	182	$	(9	)	$	108	$	83



	Balance at July 25, 2020		Acquisitions & Divestitures		Foreign Currency Translation and Other		Balance at January 23, 2021
Americas	$	21,304	$	415	$	135	$	21,854
EMEA	8,040		198		51		8,289
APJC	4,462		100		28		4,590
Total	$	33,806	$	713	$	214	$	34,733




	Balance at July 27, 2019		Acquisitions		Other			Balance at January 25, 2020
Americas	$	21,120	$	62	$	1		$	21,183
EMEA	7,977		17		—			7,994
APJC	4,432		4		(1		)	4,435
Total	$	33,529	$	83	$	—		$	33,612



	FINITE LIVES									INDEFINITE LIVES	TOTAL
	TECHNOLOGY			CUSTOMER RELATIONSHIPS			OTHER			IPR&D	TOTAL
	Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Amount	Amount
Total acquisitions (four in total)	5.0	$	108	—	$	—	—	$	—	—	$	108



January 25, 2020	Gross		Accumulated Amortization			Net
Purchased intangible assets with finite lives:
Technology	$	3,245	$	(2,103	)	$	1,142
Customer relationships	749		(304		)	445
Other	34		(23		)	11
Total purchased intangible assets with finite lives	4,028		(2,430		)	1,598
In-process research and development, with indefinite lives	308		—			308
Total	$	4,336	$	(2,430	)	$	1,906


Fiscal Year	Amount
2021 (remaining six months)	$	311
2022	$	453
2023	$	308
2024	$	188
2025	$	31
Thereafter	$	11



Fiscal Year	Amount
2020 (remaining six months)	$	383
2021	$	591
2022	$	333
2023	$	191
2024	$	93
Thereafter	$	7


1.	~~Basis of Presentation~~


3.	~~Revenue~~


~~(a)~~	~~Disaggregation of Revenue~~


~~(b)~~	~~Contract Balances~~



	FISCAL 2017 AND PRIOR PLANS					FISCAL 2018 PLAN
	Employee Severance		Other			Employee Severance			Other			Total
Liability as of July 27, 2019	$	—	$	5		$	22		$	6		$	33
Charges	—		—			209			17			226
Cash payments	—		—			(202		)	(1		)	(203		)
Non-cash items	—		(2		)	—			(21		)	(23		)
Liability as of January 25, 2020	$	—	$	3		$	29		$	1		$	33


	FISCAL 2020 AND PRIOR PLANS				FISCAL 2021 PLAN
	Employee Severance		Other		Employee Severance		Other		Total
Liability as of July 25, 2020	$	58	$	14	$	0	$	0	$	72
Charges	0		2		804		30		836
Cash payments	(58)		(3)		(703)		(3)		(767)
Non-cash items	0		0		0		(21)		(21)
Liability as of January 23, 2021	$	0	$	13	$	101	$	6	$	120


	FISCAL 2018 AND PRIOR PLANS
	Employee Severance		Other		Total
Liability as of July 27, 2019	$	22	$	11	$	33
Charges	209		17		226
Cash payments	(202)		(1)		(203)
Non-cash items	0		(23)		(23)
Liability as of January 25, 2020	$	29	$	4	$	33



Inventories:
Raw materials	$	384	$	374
Work in process	12		10
Finished goods:
Deferred cost of sales	59		109
Manufactured finished goods	667		643
Total finished goods	726		752
Service-related spares	212		225
Demonstration systems	19		22
Total	$	1,353	$	1,383



Property and equipment, net:
Gross property and equipment:
Land, buildings, and building and leasehold improvements	$	4,438		$	4,545
Computer equipment and related software	900			922
Production, engineering, and other equipment	5,196			5,711
Operating lease assets	411			485
Furniture, fixtures and other	392			376
Total gross property and equipment	11,337			12,039
Less: accumulated depreciation and amortization	(8,716		)	(9,250		)
Total	$	2,621		$	2,789



Deferred revenue:
Service	$	11,526	$	11,709
Product	7,160		6,758
Total	$	18,686	$	18,467
Reported as:
Current	$	10,638	$	10,668
Noncurrent	8,048		7,799
Total	$	18,686	$	18,467


Deferred revenue:
Product	$	8,332	$	7,895
Service	12,514		12,551
Total	$	20,846	$	20,446
Reported as:
Current	$	11,552	$	11,406
Noncurrent	9,294		9,040
Total	$	20,846	$	20,446


Remaining Performance Obligations:
Product	$	11,666	$	11,261
Service	16,512		17,093
Total	$	28,178	$	28,354


	Balance Sheet Line Item	January 23, 2021		July 25, 2020
Operating lease right-of-use assets	Other assets	$	974	$	921

Operating lease liabilities	Other current liabilities	$	366	$	341
Operating lease liabilities	Other long-term liabilities	688		661
Total operating lease liabilities		$	1,054	$	1,002



	Six Months Ended
In millions:	January 25, 2020
Cash paid for amounts included in the measurement of lease liabilities — operating cash flows	$	206
Right-of-use assets obtained in exchange for operating leases liabilities	$	77



Fiscal Year	Amount
2020	$	441
2021	299
2022	195
2023	120
2024	70
Thereafter	54
Total	$	1,179


January 23, 2021	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Gross	$	1,865	$	5,817	$	2,575	$	10,257
Residual value	115		—		—		115
Unearned income	(97)		0		0		(97)
Allowance for credit loss	(43)		(96)		(9)		(148)
Total, net	$	1,840	$	5,721	$	2,566	$	10,127
Reported as:
Current	$	868	$	2,746	$	1,413	$	5,027
Noncurrent	972		2,975		1,153		5,100
Total, net	$	1,840	$	5,721	$	2,566	$	10,127


			Fiscal Year								Six Months Ended
Internal Credit Risk Rating	Prior		July 29, 2017		July 28, 2018		July 27, 2019		July 25, 2020		January 23, 2021		Total
Lease Receivables:
1 to 4	$	10	$	49	$	153	$	248	$	331	$	16	$	807
5 to 6	15		48		121		270		360		98		912
7 and Higher	3		2		6		14		20		4		49
Total Lease Receivables	$	28	$	99	$	280	$	532	$	711	$	118	$	1,768

Loan Receivables:
1 to 4	$	16	$	141	$	387	$	774	$	1,302	$	1,053	$	3,673
5 to 6	5		60		145		362		745		672		1,989
7 and Higher	2		3		8		65		58		19		155
Total Loan Receivables	$	23	$	204	$	540	$	1,201	$	2,105	$	1,744	$	5,817

Financed Service Contracts:
1 to 4	$	2	$	49	$	51	$	213	$	455	$	742	$	1,512
5 to 6	1		21		57		235		412		305		1,031
7 and Higher	0		0		2		15		12		3		32
Total Financed Service Contracts	$	3	$	70	$	110	$	463	$	879	$	1,050	$	2,575

Total	$	54	$	373	$	930	$	2,196	$	3,695	$	2,912	$	10,160


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
January 23, 2021	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	68	$	13	$	83	$	164	$	1,604	$	1,768	$	2	$	33	$	33
Loan receivables	109		30		73		212		5,605		5,817		15		50		50
Financed service contracts	40		11		101		152		2,423		2,575		31		4		4
Total	$	217	$	54	$	257	$	528	$	9,632	$	10,160	$	48	$	87	$	87


Three months ended January 23, 2021	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of October 24, 2020	$	46	$	101	$	7	$	154
Provisions (benefits)	(4)		(6)		2		(8)
Other	1		1		0		2
Allowance for credit loss as of January 23, 2021	$	43	$	96	$	9	$	148


~~10.~~	~~Available-for-Sale Debt Investments and Equity Investments~~



January 25, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government securities	$	2,218	$	13	$	—		$	2,231
U.S. government agency securities	20		—		—			20
Corporate debt securities	13,405		196		(4		)	13,597
U.S. agency mortgage-backed securities	1,612		14		(3		)	1,623
Commercial paper	1,052		—		—			1,052
Certificates of deposit	64		—		—			64
Total ⁽¹⁾	$	18,371	$	223	$	(7	)	$	18,587


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
January 23, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	109	$	0	$	0	$	0	$	109	$	0
U.S. government agency securities	36		0		0		0		36		0
Corporate debt securities	663		(1)		0		0		663		(1)
U.S. agency mortgage-backed securities	698		(3)		0		0		698		(3)
Certificates of deposit	15		0		0		0		15		0
Total	$	1,521	$	(4)	$	0	$	0	$	1,521	$	(4)



	Amortized Cost		Fair Value
Within 1 year	$	5,704	$	5,717
After 1 year through 5 years	8,898		8,995
After 5 years through 10 years	2,150		2,245
After 10 years	7		7
Mortgage-backed securities with no single maturity	1,612		1,623
Total	$	18,371	$	18,587


~~(b)~~	~~Assets and Liabilities Measured at Fair Value on a Recurring Basis~~