Cisco Systems Inc. (CSCO) April 8, 2018 - biz.uiowa.edu · portfolio of solutions which can be delivered from the cloud ... This includes a Cisco’s Unified Computing System (Cisco

Important disclosures appear on the last page of this report.

The Henry Fund

Henry B. Tippie School of Management

Ifeanyi Ugoh [[email protected]]

Cisco Systems Inc. (CSCO) April 8, 2018

Information Technology – Communications Equipment Stock Rating Hold

Investment Thesis Target Price $48-52 Cisco is a worldwide leader in communications equipment and its dominance in data networking equipment is not in doubt. Cisco's extensive product portfolio and broad reach into the IT environments of enterprises and service providers affords the company durable competitive advantage in its core markets of switches and routers as it expands at the same time to address ongoing transitions to cloud computing and software-defined networking. Hence, our HOLD recommendation. Drivers of Thesis

• Cisco’s return to top-line growth for the first time in over two years, validating the company's swing away from its traditional routing & switching business and toward applications and software.

• Cisco’s IoT software and networking hardware platforms has seen the company connect 40million IoT devices globally at February 2017. BI intelligence forecasts that global IoT platform spending will rise from $100 billion in 2015 to $315 billion in 2021.

• Cisco’s 27% market share in the on premises and cloud portion of the collaboration market. MarketsAndMarkets reports that the cloud collaboration market is expected to nearly double its size by 2021 to $42.5 billion.

Risks to Thesis

• The transition to cloud computing and infrastructure-as-a-service may reduce demand for Cisco’s enterprise networking gear sold into enterprises. Cloud service and enterprise customers such as Google, AT&T and Amazon are leading the way in using generic switch boxes and applying software defined networking on them.

• Increased pressure from Huawei limiting Cisco’s penetration in China and other markets outside the USA as well as pressure from new network architectures that do away with powerful, carrier-grade routers.

• Cisco continues to acquire a large number of companies. While this improves revenue opportunities, it increases integration risks. The pace of acquisition also runs the risk of dividing focus and skews the balance sheet in the form of high level of goodwill.

Henry Fund DCF $50.63 Henry Fund DDM $28.74 Relative Multiple $56.51 Price Data Current Price $42.42 52wk Range $30.36 – 46.16 Consensus 1yr Target $48.00 Key Statistics Market Cap (B) $201.30 Shares Outstanding (M) 4818 Institutional Ownership 79.6% Two Year Beta 1.245 Dividend Yield 2.66% Price/Earnings 16.75 Price/Earnings (FY1) 21.40 Price/Sales (TTM) 4.38 Price/Book (mrq) 3.97 Profitability Operating Margin 24.9% Profit Margin 20.0% Return on Assets (TTM) 7.0% Return on Equity (TTM) 15.0%

Earnings Estimates Year 2015 2016 2017 2018E 2019E 2020E

EPS $1.77 $2.13 $1.92 $1.99 $2.07 $2.16

growth 13% 17% -10% 3.6% 4.20% 4.18%

12 Month Performance Company Description

Cisco Systems was founded in 1984 with the express intent of providing equipment for Local Area Network connections by use of multiprotocol routers. It has since consolidated in the networking market, many a times by creating new segments. As it looks to pivot to a subscription based model and works on creating the next generation of networking equipment, Cisco remains the leader in its industry.

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EXECUTIVE SUMMARY

Cisco is the world’s largest networking company with products spanning the entire length and breadth of the market.

Cisco is currently making a necessary pivot to a new business model to enable it move to a subscription based, value added model. The aim is to create the next generation of smart networks by introducing the concept of 'The Network. Intuitive,' representing Cisco's architecture for intent-based networking (IBN) which works to simplify operations in the enterprise network.

However, Cisco’s plan to move into to a Software Defined (SD) Wide Area Network (WAN) is not without competition as this area is largely populated with startups and hence the ability of a major firm to acquire and consolidate this space may prove disruptive for Cisco.

We recognize the growth in core router sales outpacing edge routers especially as service providers seek to boost network capacity in response to strong data growth, notably for cloud-based services. However, with core routers representing just 22% of the market, the growth in this segment hasn't been enough to offset weakness in edge router sales at Cisco.

We noted the potential for significant growth of end market drivers of revenues for Cisco mostly from its IoT, Security and Collaborative cloud platforms bolstered by expected robust economic growth as well as increased capital spending especially in the United States.

Our estimated top line revenue growth coupled with Cisco’s efforts to increase gross and operating margins are the major drivers of the DCF model used to compute the intrinsic value of Cisco’s stock. The model suggests a 17.8% upside on the current stock price, which is the driver for the “Hold” recommendation for CSCO.

COMPANY DESCRIPTION

Cisco is a worldwide leader in communications equipment. Originally created to provide routers and switches for Ethernet-based data networks within enterprises, the company has expanded into virtually every niche of the networking market and into information processing as well. Fiscal 2017 sales were $48 billion.

Cisco’s conducts its business globally, and manages most of its business by geography. This is organized into the following three geographic segments: Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).

Source: Cisco 10K

Cisco’s products and technologies are also grouped into the following categories: Switching; Next-Generation Network (NGN) Routing; Collaboration; Data Center; Wireless; Security; Service Provider Video and Other Products. Cisco also offers a broad range of service offerings, including technical support services and advanced services to increasingly deliver their technologies through software and services.

Revenue Decomposition

While Cisco offers products across many categories, for reporting purposes, it reports in two categories – Products and Services.

Graphical representation of these segments is shown below. The data has been taken from Cisco’s 10K for historical while forward looking data is from our model’s estimates.

Our model estimates that Cisco’s pivot in recent times to offer subscription based offerings and its push to make its hardware smart by marrying hardware with software will better the revenue mix for Cisco.

However, we expect that as competitors enter the market Cisco might lose some of its market share and hence a

50%

36%

14%

2017 Cisco Revenue by Geography

Americas

EMEA

APJC

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slight reduction in revenue from services. The product mix from revenue does not significantly change as highlighted in our estimate model. We estimate from our model a 31% contribution from service in 2022 up from 25%in 2017.

Source: Cisco 10K

Source: Cisco fiscal 2017 summary report

Switching

Switching is an integral networking technology used to connect traditional data centers, private and public cloud

data centers within Local Area Network (LAN) in buildings and Wide Area Network (WAN) across great distances. Cisco’s switching products connect end users, workstations, IP phones, wireless access points, and servers and also function as aggregators on LANs and WANs. These switches employ several widely used technologies to offer top performance and features required for nearly all of its customer’s needs.

3Q17 data from Synergy Research Group shows that Cisco’s share of the total worldwide switching and router market was 51%, with shares in the individual segments ranging from 63% for enterprise routers to 38% for service provider routers. This was its best market share performance since the first quarter of 2016.

Source: Bloomberg

Ethernet switching is the largest of the three segments accounting for almost 60% of the total and it is also the segment that has by far the highest growth rate, propelled by aggressive growth in the deployment of 100 GbE and 25 GbE switches. The big picture is that total switching revenues are still growing and Cisco continues to control half of the market.

74%

26%

Revenue Decomposition 2017

Products Service

76%

24%

Revenue Decomposition 2027

Products Service

5.2

51.4

1.71.71.8

3

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3.54

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Switch Market Share 2017

Artisa

cisco

citrix

dell

extreme

f5

hewlettt packard

Huawei

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Source: Synergy Research Group

In fiscal 2017, Cisco introduced their Cisco Catalyst 9000 series of switches which is the next generation in the Cisco Catalyst family of switches developed for security, IoT, and the cloud. These network switches form the foundation for Cisco’s SD-Access technology, one of their leading enterprise architectures. The launch of this subscription based Catalyst 9000 series has seen a good adoption with more than 1,100 customers in just over three months since its launch.

We expect that data center switch trends will improve in fiscal 2019 experiencing breakthrough growth of almost 40% percent and 90% by 2022. Cisco’s 9000 series is an example of its positioning to take advantage of the growth in this segment.

Source: Crehan Research Inc.

Next Gen Routing (NGN)

NGN technology sits at the core of the internet’s foundation. This category of technologies interconnects public and private wireline and mobile networks for mobile, data, voice, and video applications.

Cisco, currently dominates 40% of this market as at 2017 and differentiates itself in this market through the use of advanced capabilities, sometimes referred to as “intelligence,” to ensure performance in delivering high media rich applications and in the transmission of information.

Source: Bloomberg

0.4

40.5

0.523.8

14.4

1.113.4

3

0.80.5 1.6

Routers Market Share 2017

Adtran

Cisco

Ericsson

Huawei

Juniper

H3c

Nokia

Others

Teldat

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Source: Bloomberg

Router and Switch Market – forecast 2015-2022

Source: Grand view Research

Mordorintelligence estimates that the global wireless router market will grow at a CAGR of 25% from 2015 to 2020 with the adoption of smart devices such as smartphones, tablets, and smart TV being a major driving factor for the growth of worldwide wireless router market. The Integration of the internet and wireless services in the industry has created a greater scope of growth for the market. We expect that Cisco’s continued leadership in

this market as well as its innovation in meeting industry trends makes it poised to continue to experience growth in this segment for the forecasted period.

Collaboration

Here Cisco combines the power of software, hardware, and the network to create an effective, comprehensive, and less complex innovative solutions. Collaboration is a portfolio of solutions which can be delivered from the cloud, premises or hybrid environments, and which integrate voice, video, and messaging on fixed and mobile networks across a wide range of devices/endpoints such as mobile phones, tablets, desktop and laptop computers, video units and collaboration appliances.

Cisco acquired MindMeld, Inc. to bring artificial intelligence capabilities into this portfolio with a focus on the future of conversational user interfaces.

Data Center

This includes a Cisco’s Unified Computing System (Cisco UCS) which combines computing, networking and storage infrastructure with management and virtualization for agility, simplicity and scale. This segment is a source of faster-growing products in data center products. A string of recent acquisitions made by the company points to further investments in these areas.

We have outlined the current market share for SD WAN for 4Q17 below. Cisco’s 4th position trailing leaders such as Velocloud is indicative of its growth in this segment. The firm plans to make more acquisitions to better position itself in this segment as the market moves towards consolidation.

August 2017 Cisco completed its $610 million acquisition of Viptela which was ranked No.2 SD-WAN company in the first half of 2017 while VMware bought SD-WAN market leader, Velocloud for an undisclosed amount November 2017 making it a “two -horse race” for the number 1 spot by Cisco and VMware.

IHS Markit estimates that the total SD-WAN market will reach $3.3 billion by 2021 from $137 million in 2017.

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Source: Bloomberg

Wireless

Cisco is relatively new to this segment from a commercial offering standpoint. While it has been present in the consumer space for a long time, it is just now that Cisco is ramping up its offerings in this space. With ever increasing need for data over wireless, this segment has the potential to be a growth driver for Cisco. Cisco competes in this segment with a variety of firms but has gradually captured about 26% of the total market.

Source: Bloomberg

With data demand exploding, the wireless carrier segment has grown in importance. Mobile carriers are increasingly looking to make their networks more spectrum-efficient and put their network resources to use without having to materially increase capex expenditure.

Also, the proliferation of smartphones has caused mobile data traffic to grow exponentially and the advent of high-speed LTE networks is likely to accelerate that growth. Therefore, networking solutions that allow carriers to manage traffic efficiently are to become increasingly important in the coming years.

Cisco intends to tap this market by adding network management solutions to its product portfolio and broadening its relationship with carriers.

The increased carrier focus might help Cisco to gain share in edge routing (a kind of specialized router which resides at the ‘edge’ of a network and ensures connectivity with external networks) segment, where its competitors, Juniper and Alcatel Lucent, have substantial market share.

Source: Bloomberg

Source: Bloomberg

3.5 2.74.5

26

2.78.9

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Wireless LAN Market Share 2017

Arris

AVM

Belkin

Cisco

D-Link

Hewlette Packard

Huawei

Netgear

Others

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We noted earlier that the Edge router market represents just 22% of the market as indicated in the diagram above, as such the growth in this segment hasn't been enough to offset weakness in edge router sales at Cisco.

Service

Service includes technical support services and advanced services. Technical Support includes Cisco Smart Services offering, which leverages the intelligence from Cisco’s millions of devices and customer connections to protect and optimize network investment for its customers and partners. Advanced services program supports networking devices, applications, solutions, and complete infrastructures. Its service and support strategy seeks to capitalize on increased globalization, and Cisco believes this strategy, along with its architectural approach, has the potential to further differentiate it from its competitors.

Source: Cisco 10k

Cisco’s service revenue has consistently grown on a year basis indicating that as they increase their market share, the high switching cost enables Cisco to take advantage of this segment in growing its revenue. Also, the existing ecosystem of channel partners, value-added resellers, and a skilled workforce provides Cisco with a bit of a safe haven in its markets for numerous reasons. Cisco’s certification is still the de facto standard in network related credentials alluding to customer confidence in Cisco’s service as a leader.

Security

The fastest-growing segment for Cisco. The security business generated nearly $2 billion of revenue for Cisco during fiscal 2016, up 13% year over year and it continued

this streak with a 14% year over year in 2017 making it one of the largest enterprise security companies in the world.

Security remains a major concern as the use of the internet for various purposes increases exponentially. Recent breaches that happened with Equifax, Yahoo, Sony, etc. have the potential to erode the trust of new generation platforms. Due to higher public interest and government regulations, companies now seek to spend more on securing their digital operations and networks. Cisco aims to capitalize on this trend by leveraging new age products resulting from integration of its existing portfolio with its acquisition of OpenDNS and Cloudlock.

With International Data Corp estimating that cybersecurity spending will grow to $101B by 2020, we feel this segment represents a low hanging fruit for Cisco given its positioning and we are enthusiastic about growth in this segment. We estimate a 12% year over year growth in this segment for 2018.

Other Products

This segment is essentially the emerging technologies section of Cisco’s portfolio. With Cisco’s acquisition of Jasper and AppDynamics, Cisco has placed its bets on Internet of Things (IoT) and analytics as growth drivers of the future. While IoT growth has been staggering, it still needs to hit critical mass before it starts getting adopted by the mainstream. Mckinsey reports that the installed base of IoT devices is expected to increase 15-20% annually reaching about 26-30 billion units by 2020. Considering Cisco’s positioning in every level of a network infrastructure, it makes eminent sense for Cisco to invest in IoT.

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Source: Softwarestrategiesblog.com

The AppDynamics acquisition is interesting to say the least. It provides Cisco with the ability to offer an integrated suite of software application and IT infrastructure monitoring with analytics which in turn enables end-to-end visibility and intelligence from the network to the application. This has great potential in realtime scaling and security as networks can utilize analytics to understand demand as well as potential breaches and adapt in real-time to divert capacity and stop attacks.

We see this as a very interesting segment and would watch its growth but for now this segments contribution to Cisco may not be very significant to Cisco’s topline.

We noted that Cisco is the clear leader in the switch and NGN market and still leads substantially in Wireless LAN as at 2017. This is indicative of Cisco’s strong presence in the computer equipment’s sector.

RECENT DEVELOPMENTS

Cisco’s emergence as a key optical player in the U.S.

Cisco has emerged as a key vendor of optical networking gear. Its global share is small, at 5%, but it emerged as a leader in the North America metro optical market with a 31% share in 4Q. The rapid rise in metro optical complements its leadership in switching and routing in our view, and positions it as an end-to-end wireline network gear provider.

While it's still a relatively small vendor in optical, with a 5% market share in 2017 it has quietly taken one point in market share in 2017, increasing sales 25% year-over-year to $679 million. Its NCS 1000/2000 optical systems have positioned the company well in the faster-growing DCI and metro optical markets.

Cisco's metro optical deal with Verizon has been a strong contributing factor to its growth in optical, resulting in a six-point increase in North America metro optical share in 2017 to 24%. Its momentum in North America metro optical is strong, as it jumped ahead of Ciena in 4Q to become the market leader.

Source: Bloomberg

Cisco's market leadership in switching and routing complements its growing optical presence, which may help create an end-to-end wireline networking opportunity for the company in next-generation networks. While it's a long-term vision, Cisco has several enabling technologies, such as Tail-f for network orchestration and Application Centric Infrastructure, that could possibly tie together its switching, routing and optical platforms over time.

This vision may fit well with Verizon, which is working with Cisco as part of its metro optical rollout. Cisco is also involved in Verizon’s effort to migrate its multiple networks to a single architecture that aims to densify the network, get closer to customers and bring more services to them.

Source: Bloomberg

Cisco’s Acquisitions

In the past two years Cisco has acquired:

• Tropo and CloudLock with a focus on Cloud Tech

• OpenDNS and Lancope for network security

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• ParStream and AppDynamics for real-time network analytics

Recent Earnings

For fiscal 2Q18 (ended January 27, 2018), Cisco reported revenue of $11.89 billion, which was 3% on a GAAP basis and down 2% sequentially. Fiscal 2Q18 revenue was at the high end of management's implied guidance range of $11.7-$11.9 billion; revenue also topped wall street $11.81 billion consensus forecast.

The gross margin expanded sequentially to 64.7% for 2Q18 from 63.7% in 1Q18, and was also up from 64.2% in the year-earlier quarter. The non-GAAP operating margin expanded sequentially to 31.7% in 2Q18 from 30.4% in 1Q18 and from 31.1% in 2Q17.

Non-GAAP earnings for 2Q18 totaled $0.63 per diluted share, which was up 11% year-over-year and up two cents sequentially. Non-GAAP EPS was well above the high end of management's $0.58-$0.60 guidance range and topped street consensus forecast by four cents.

For 3Q18, Cisco guided for a 3%-5% annual sales gain for fiscal 3Q18, implying revenue of $12.3-$12.5 billion. Management also guided for a gross margin of 63%--64%; operating margin of 29.5%-30.5%; and EPS of $0.64-$0.66. At the midpoint, both revenue and EPS guidance comfortably exceeded the pre-reporting consensus.

Our FY18 earnings projection is $2.37 per share. Reflecting the lower tax rate as well as mix-related gross margin improvement, our FY19 EPS estimate per share is $2.48. Our estimates assume 5% growth in FY19 from FY18.

Cash was $73.7 billion at 2Q18. Cash was $70.49 billion at the end of FY17, $65.8 billion at the end of FY16 and $62.2 billion at the end of FY15.

Debt was $39.3 billion at 2Q18. Debt was $33.72 billion at the end of FY17, $28.6 billion at the end of FY16, and $25.3 billion at the end of FY15. Cisco initially took on $6.3 billion in long-term debt in FY05 to pay for its Scientific-Atlanta acquisition. Cash flow from operations was $13.88 billion in FY17, $13.57 billion in FY16, and $12.55 billion in FY15.

Cisco announced a 14% increase in its quarterly dividend, to $0.33 per share, in February 2018. Cisco previously hiked its quarterly dividend by 12%, to $0.29 per share, in February 2017; and by 24%, to $0.26 per share, in February

2016. This follows a 10.5% hike in February 2015, to $0.21, and a 12% hike in February 2014, to $0.19.

Cisco initiated its dividend in March 2011 at a quarterly rate of $0.06 per share. We estimate that Cisco will spend $6.3 billion on dividends in FY18 and $6.7 billion in 2019.

Cash flow from operations is expected to cover the dividend in both years by a factor of 2.1-2.2. Our annual dividend estimates are $1.26 for FY18 and $1.37 for FY19.

INDUSTRY TRENDS

Software-Defined Networking (SDN)

Software-defined networking is a rapidly growing disruptive technology that aims to modernize the infrastructure powering hyperscale clouds. The technology disaggregates the logic from specialized networking gear, allowing users to leverage generic, cheaper gear to operate and manage a network. The approach has gained firm traction with hyperscale cloud providers, including Google and Amazon.com, as they aim to scale the cloud with software and streamline networks with custom-built switches.

In contrast to the PC industry, separating software from hardware is a relatively new concept in networking. This has created software opportunities while having long-term implications for incumbent networking gear makers, including Cisco.

SDN technology continues to evolve as cloud vendors aim to push the envelope with their networks. While small vendors such as Big Switch and Bigfoot Networks continue to drive innovation, the major players such as Cisco also have SDN developments in the market.

It's tough to draw parallels between software-defined networking (SDN) and server virtualization because this move to (SDN) has limited or no impact on networking gear adoption and growth, in contrast to the effect server virtualization had on the server market. The aim of virtualizing the network operating system in SDN is to give operators greater flexibility and control of their networks and network traffic. Server virtualization aims to boost CPU utilization in data center servers.

Whereas server virtualization impacted the server market, SDN's impact on ports has been negligible. Data center switch ports of 25 gigabits per second and above are

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expected to grow at a 42% rate in 2016-21, compared with mostly flat growth in servers when virtualization ramped up.

The migration of data-center workloads from enterprise to hyperscale cloud providers such as Google, Facebook and Microsoft further the shift away from specialized Cisco network switching gear. Cloud networks will likely leverage white box switches, which are customized networking gear using generic components. While branded devices, such as those made by Cisco and Arista.

We are however that Cisco will still experience strong growth in this emerging sector especially as its current pivot is based on the fundamental premise of how SDN works and how networks can no longer be opaque and hardware driven.

Source: Bloomberg

IoT and Smart Home Tech – IP Traffic

Internet of Things(IoT) is the inter-networking of physical devices also referred to as ("connected devices" and "smart devices"), vehicles, buildings, and other items— embedded with electronics, software, sensors, actuators, and network connectivity that enable these objects to collect and exchange data.

Cisco’s focus on wireless networking means the company is ahead of the curve and has the required products to meet the demand

Cisco forecasts total IP data traffic to grow at a 22% average annual rate in 2015-20, reaching 194.4 exabytes a month in 2020 vs 72.5 in 2015. This highlights the need for carriers to continue to boost their network capacity.

The importance of securing these devices is all the more as IoT devices are increasingly being connected to the enterprise networks.

Cisco’s capabilities with analytics and smart networks means that it can help in securing these new age networks and devices in real-time.

MARKETS AND COMPETITION

The traditional markets Cisco has led in the past are characterized by rapid change, converging technologies, and a migration to networking and communications solutions that offer relative advantages. These market factors represent both an opportunity, and a competitive threat to Cisco. Cisco has been forced to offer discounts and deals in response to actions by its peers. The company, together with Juniper, serves almost 80% of the core router market and enjoys the second position in the market. Cisco ‘s competitors are also revamping their product lines with faster and power-efficient products. Although the edge business remains strong, the competitive pressure at the core remains intense.

Cisco also faces stiff competition as they continue to expand globally, in particular, they have experienced price-focused competition from competitors in Asia, especially from China, and we anticipate this will continue.

Barriers to entry are relatively low, and new ventures to create products that do or could compete with Cisco’s

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products are regularly formed. In addition, some of Cisco’s competitors may have greater resources, including technical and engineering resources, than Cisco. Cisco also faces competition from resellers and distributors of their products. Also, companies who may have strategic alliances in some areas may be also competitors in other areas, and in our view this trend may increase.

Peer Comparisons

Operating Margins

Cisco’s operating margins is 14% higher than the mean for its peers at 26% only second to Arista and F5 Networks at 27 and 30 respectively. This is indicative of managements efficient use of fixed costs in comparison to its peers in the industry.

Cost of Goods Sold / Net Sales

This ratio is important in explaining business performance across peers in this industry. It indicates how much it cost to make a sale. We noted that Cisco is performing at almost the industry mean in comparison to its closest competitors Juniper and Netgear with 39 and 74% respectively.

Price to Earnings ratio & EV/EBITDA

We consider the EV/EBITDA a better valuation metric because it is not materially affected by changes in capital structure, therefore it provides a comparison of companies with different capital structure. But price to earnings ratio indicates amount one would invest in a company to receive a dollar of that company’s earnings. It depends considerable on the investor’s outlook of the

company’s earnings estimates. However, taking these two ratios together, we get a clearer picture on the intrinsic value of a company.

While Advanced Radware Ltd has a very high EV/EBITDA values of 104, it also has high P/E ratios of 66.49 while Cisco with an EV/EBIDTA ratio of 11.9 has its P/E ratio at 16 indicative that it has more intrinsic value in comparison to its peers and currently slightly undervalued.

ECONOMIC OUTLOOK

We have a positive fundamental outlook for the Communications Equipment industry. The companies in this industry have had good growth and posted healthy earnings in last few years and we expect it to continue in future.

However, as an industry, the networking industry is very sensitive to the overall health of the economy as businesses typically spend higher on infrastructure upgrades during a booming economy.

The industry can expect strong consumer segment sales with customer confidence trending higher.

There is a strong correlation between growth of this industry and GDP growth. So, it is also important to track the GDP growth forecasts for US as Cisco’s revenue growth also depends on the GDP growth.

CATALYSTS FOR GROWTH

In the long term, growth will be driven by Cisco’s bets on forward biased technologies and companies it acquires in these areas as well as its ability to fully integrate into one component. Cisco has set itself up well to take advantage of the upcoming 5G, IoT, and cloud industry transitions.

Nam e P/E 2019 P/E 2018 EV / EBITDA OPM

COG S/Net

Sa les

CISCO SYSTEMS INC 15.52 16.44 11.968 26 37

RADWARE LTD 43.89 66.49 104.205 10 19

EXTREME NETWORKS

INC 8.97 10.09 20.502 13- 44

ARISTA NETWORKS INC 31.75 37.76 32.894 30 34

A10 NETWORKS INC 171.62 211.67 3- 22

F5 NETWORKS INC 15.36 16.45 13.165 27 17

JUNIPER NETWORKS

INC 11.42 13.59 6.952 16 39

NETGEAR INC 17.62 20.09 14.504 5 74

Mean 39.52 49.07 29.17 12.12 35.83

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Cisco, at heart is an innovation constantly improving and meeting its market demands and technological changes. Thus, we believe its current large customer base and market coupled with high switching cost in combination with its integration of new technologies to drive performance, Cisco will continue to experience strong growth.

INVESTMENT POSITIVES

Largest market share driven by constant innovations in technology that drive performance and meet customer needs.

Huge switching cost advantage, wide customer installed base and current strong existing relationships with customers.

Pivot to subscription to avoid cyclicity of hardware

INVESTMENT NEGATIVES

Strong competition in core segments

Backward integration by major customers such as AT&T current plan to produce and use white boxes against Cisco’s switches to reduce its current cost.

VALUATION

We valued Cisco’s stock in the $48-$52 range using DCF and Relative PE modeling. We have modeled conservative growth as the industry and technological landscape transforms. The valuation is heavily sensitive to the CV growth rate. We believe that a long-term stagnancy has caused arbitration opportunity to present itself and that the market does not value the growth potential of Cisco correctly. Even with very conservative numbers, we see significant upside on this investment

Relative Price to Earnings Multiple

Implied Value:

Relative P/E (EPS18) $ 56.51

Relative P/E (EPS19) $ 48.69

We have used a weighted P/E for calculating the intrinsic value of Cisco according to its peers in the Computer equipment industry. However, we did not consider the

relative valuation most suited due to the different revenue segments and earnings composition of peers, thus making it difficult to compare like for like.

Discounted Cash Flow Valuation

We believe that the intrinsic value of Cisco’s stock is closest to the DCF-EP model target price of $50.63 as the DCF model accounts for the residual income available to all equity holders and is the most realistic and conservative approach to value Cisco.

We have calculated this based on CV growth of 3% and CV growth of ROIC of 34.06%. We have also used a calculated WACC of 8.23%, which has been calculated on the basis of Risk Free Rate of 3.06%, Market Risk Premium of 4.80%, Pretax cost of debt of 5.50% and a Cost of Equity of 9.04%.

Implied Value:

DCF $ 50.63

DDM $ 28.74

Revenue Growth Rates

Our estimates for Cisco’s revenue are mentioned in the

table below;

Annual revenue forecasts and growth rates.

FY Revenue M $ Growth %

2018 49,128 2.30

2019 50,556 2.90

2020 52,031 2.80

2021 53,555 2.90

2022 55,131 2.94

2023 56,704 2.85

2024 58,272 2.76

2025 59,833 2.67

2026 61,382 2.58

2027 62,918 2.50

Cost of Goods Sold

Cisco maintained an average rate of 31.3% as a percentage of revenue for the 5 years prior to its acquisition of Linear Technologies in 2017 where COGs as a percentage of sales peaking at 36%. We forecast a constant rate of 32% which is close to its historical average as we expect the rates to decline from its highest in 2017 to a stable rate by 2022.

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This is in line with management’s decision to close their Singapore plant to enable them consolidate fully with newly acquired Linear Technologies.

Continuing Growth Assumptions

Using the McKinsey approach to valuation, net operating profit less adjusted taxes (NOPLAT) feeds into the discounted cash flow model that is used to derive the target price. After the forecast period, we estimate a continuing NOPLAT growth amount.

We used a CV rate of 3% which is closed ties to the current U.S. GDP growth rate. Also, we estimate that Cisco will reach its steady state by 2027 which is the end of the forecasted period due to the nature of the industry.

Gross operating margins were kept in line with average historic rates of 69%

The various sensitivity analyses performed reveal the target price for Cisco’s share to be between $48 - 52. The target price is most sensitive to the CV rate with a -4.45% - 5.39% effect on the target price by a +/- 0.5% change in CV rate.

Liquidity / Long term debt

We measured Cisco’s ability to meet up with its short-term obligations as well as its ability to clear longer-term debts using Liquidity and leverage ratios. The current ratio for Cisco is 3.27. This implies Cisco’s ability to cover its immediate obligations over the next 12 months. The debt ratio of Cisco is 24.59%. Thus, the assumption that Cisco is able to settle its long-term debts for the forecasted period with little or no financial risk.

Marginal tax rate

We assumed an average marginal tax rate of 8.28% for the forecasted 10-year period. This represents a 14.7% decrease in marginal tax rate from 2017. Historically Cisco enjoyed an average of 14.7% in foreign tax credits. However, we have assumed an average foreign tax credit of 13.4% for the forecasted 10-year period to cater for unforeseen changes while taking a conservative approach in ensuring that our assumptions reflect close realities.

The stock currently trades at $42.42 and we have estimated an upside of 17.9% to our target price of $50.63 which is driving the HOLD recommendation for the stock as it relates to our portfolio.

REFERENCES

1. CSCO 10-K, 10-Q, 8-K 2. 2. Bloomberg 3. Crehan Research Inc. 4. Statista 5. Grandview Research 6. Zacks Investment Research 7. Software strategies blog.com 8. Fidelity investments 9. Yahoo Finance 10. Wilson-Stonaker.com 11. MarketWatch 12. Statista.com 13. Census.gov 14. IDC 15. Mckinsey.com 16. MarketsAndMarkets 17. BI intelligence 18. Mordorintelligence

IMPORTANT DISCLAIMER

Henry Fund reports are created by students enrolled in the Applied Securities Management program at the University of Iowa’s Tippie College of Business. These reports provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of our students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold an investment position in the companies mentioned in this report.

CISCO SYSTEMS INC.

Revenue Decomposition

Fiscal Years Ending July. 31 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

Revenue 49,161,000 49,247,000 48,005,000 49,128,000 50,556,000 52,031,404 53,555,934 55,131,380 56,704,655 58,272,926 59,833,290 61,382,783 62,918,385

Products 37,750,000 37,134,899 35,705,000 37,700,759 38,771,326 39,876,796 41,018,416 42,197,482 43,373,312 44,543,744 45,706,567 46,859,531 48,000,349

Service 11,405,352 12,114,762 12,289,280 11,430,448 11,787,974 12,158,005 12,541,015 12,937,497 13,335,045 13,732,986 14,130,629 14,527,259 14,922,144

Revenue

Products 76.79% 75.41% 74.38% 76.74% 76.69% 76.64% 76.59% 76.54% 76.49% 76.44% 76.39% 76.34% 76.29%

Service 23.20% 24.60% 25.60% 23.27% 23.32% 23.37% 23.42% 23.47% 23.52% 23.57% 23.62% 23.67% 23.72%

YoY Growth

Products 4.28% 0.17% -2.52% 2.34% 2.91% 2.92% 2.93% 2.94% 2.85% 2.77% 2.68% 2.59% 2.50%

Service 4.36% -1.63% -3.85% 5.59% 2.84% 2.85% 2.86% 2.87% 2.79% 2.70% 2.61% 2.52% 2.43%

CISCO SYSTEMS INC.

Income Statement

Fiscal Years Ending July. 31 2,015 2,016 2,017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

Revenue 49,161,000 49,247,000 48,005,000 49,128,000 50,556,000 52,031,404 53,555,934 55,131,380 56,704,655 58,272,926 59,833,290 61,382,783 62,918,385

Cost of revenue 17,038,000 16,137,000 15,495,000 15,705,184 16,004,962 16,310,746 16,622,631 16,940,709 17,248,358 17,544,747 17,829,057 18,100,486 18,358,256

Gross profit 32,123,000 33,110,000 32,510,000 33,422,816 34,551,038 35,720,658 36,933,304 38,190,672 39,456,297 40,728,179 42,004,234 43,282,297 44,560,130

Operating Expenses

Research and development 6,207,000 6,296,000 6,059,000 6,183,771 6,363,514 6,549,224 6,741,118 6,939,420 7,137,449 7,334,848 7,531,252 7,726,288 7,919,575

Sales, General and administrative 11,861,000 11,433,000 11,177,000 11,885,027 12,230,488 12,587,417 12,956,231 13,337,363 13,717,969 14,097,364 14,474,847 14,849,699 15,221,192

Depreciation and Amortization 2,442,000 2,150,000 2,286,000 2,761,212 2,923,493 3,103,879 3,283,971 3,463,552 3,636,328 3,803,861 3,972,737 4,134,889 4,290,452

Restructuring, merger and acquisition 484,000 268,000 756,000 398,448 410,030 421,996 434,361 447,138 459,898 472,617 485,273 497,840 510,294

Other operating expenses 359,000 303,000 259,000 336,735 346,522 356,635 367,085 377,883 388,667 399,416 410,111 420,732 431,257

Total operating expenses 21,353,001 20,450,001 20,537,001 21,565,193 22,274,048 23,019,152 23,782,765 24,565,356 25,340,311 26,108,107 26,874,220 27,629,448 28,372,770

Operating income 10,769,999 12,659,999 11,972,999 11,857,623 12,276,990 12,701,506 13,150,538 13,625,315 14,115,986 14,620,072 15,130,013 15,652,849 16,187,360

Non Operating Expenses

Interest Expense 566,000 676,000 861,000 908,355 958,315 1,011,022 1,066,628 1,125,293 1,187,184 1,252,479 1,321,365 1,394,040 1,470,712

Other income (expense) 997,000 936,000 1,175,000 1,199,440 1,224,388 1,249,856 1,275,853 1,302,390 1,329,480 1,357,133 1,385,362 1,414,177 1,443,592

Income before taxes 11,200,999 12,919,999 12,286,999 12,148,708 12,543,064 12,940,340 13,359,763 13,802,413 14,258,283 14,724,726 15,194,010 15,672,986 16,160,240

Provision for income taxes 2,220,000 2,181,000 2,678,000 2,551,229 2,634,043 2,717,471 2,805,550 2,898,507 2,994,239 3,092,193 3,190,742 3,291,327 3,393,650

Net income 8,981,000 10,739,000 9,609,000 9,597,479 9,909,021 10,222,868 10,554,213 10,903,906 11,264,043 11,632,534 12,003,268 12,381,659 12,766,589

Shares Outstanding 5,104,000 5,053,000 5,010,000 5,011,629 5,013,280 5,014,953 5,016,644 5,018,354 5,020,079 5,021,820 5,023,574 5,025,340 5,027,118

Earnings per share 1.76 2.13 1.92 1.92 1.98 2.04 2.10 2.17 2.24 2.32 2.39 2.46 2.54

Dividends 0.82 0.99 1.13 1.26 1.37 1.48 1.59 1.70 1.81 1.94 2.07 2.20 2.33

Payout Ratio 46.60% 46.58% 58.92% 65.79% 69.31% 72.60% 75.58% 78.24% 80.67% 83.75% 86.63% 89.29% 91.75%

CISCO SYSTEMS INC.

Balance Sheet


Cash and cash equivalents 6,877,000 7,631,000 11,708,000 10,983,268 15,913,864 21,616,819 27,258,403 32,826,054 38,057,773 43,022,690 48,018,194 52,678,042 57,006,534

Short-term investments 53,539,000 58,125,000 58,784,000 60,536,549 62,341,347 64,199,952 66,113,968 68,085,048 70,114,892 72,205,252 74,357,934 76,574,794 78,857,746

Receivables 5,344,000 5,847,000 5,146,000 5,375,364 5,531,609 5,693,041 5,859,849 6,032,227 6,204,367 6,375,961 6,546,689 6,716,227 6,884,246

Inventories 1,627,000 1,217,000 1,616,000 1,569,558 1,615,180 1,662,317 1,711,023 1,761,356 1,811,620 1,861,723 1,911,574 1,961,078 2,010,138

Other current assets 5,981,000 5,899,000 6,449,000 5,799,938 5,968,525 6,142,707 6,322,690 6,508,683 6,694,421 6,879,567 7,063,780 7,246,710 7,427,999

Total current assets 73,368,001 78,719,001 83,703,001 84,264,678 91,370,525 99,314,837 107,265,933 115,213,368 122,883,072 130,345,193 137,898,171 145,176,850 152,186,663

Non-current assets

Property, plant and equipment

Gross property, plant and equipment 12,427,000 12,563,000 12,819,000 16,196,605 19,351,564 22,712,732 26,253,574 29,973,268 33,856,031 37,898,849 42,112,459 46,478,630 50,990,965

Accumulated Depreciation (9,095,000) (9,057,000) (9,497,000) (12,258,212) (15,181,705) (18,285,584) (21,569,555) (25,033,108) (28,669,436) (32,473,297) (36,446,034) (40,580,924) (44,871,375)

Net property, plant and equipment 3,332,000 3,506,000 3,322,000 3,938,393 4,169,859 4,427,148 4,684,018 4,940,160 5,186,595 5,425,552 5,666,425 5,897,707 6,119,590

Equity and other investments - - - - - - - - - - - - -

Goodwill 24,468,999 26,624,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999 29,765,999

Intangible assets 2,376,000 2,501,000 2,539,000 2,735,809 2,815,331 2,897,492 2,982,389 3,070,121 3,157,733 3,245,066 3,331,958 3,418,246 3,503,759

Deferred income taxes 4,454,000 4,299,000 4,239,000 3,371,143 3,480,573 3,590,813 3,707,199 3,830,030 3,956,529 4,085,962 4,216,184 4,349,095 4,484,303

Other long-term assets 5,374,000 6,002,000 6,249,000 5,866,726 6,037,253 6,213,442 6,395,497 6,583,632 6,771,508 6,958,786 7,145,121 7,330,157 7,513,534

Total non-current assets 40,004,999 42,932,999 46,114,999 45,678,069 46,269,015 46,894,894 47,535,102 48,189,942 48,838,364 49,481,366 50,125,687 50,761,202 51,387,184

Total assets 113,373,000 121,652,000 129,818,000 127,970,667 135,491,728 143,851,854 152,198,369 160,521,218 168,528,652 176,293,114 184,119,820 191,634,880 198,844,552

Liabilities and stockholders' equity

Liabilities

Current liabilities

Short-term debt 3,897,000 4,160,000 7,992,000 4,927,606 4,500,115 4,752,485 5,047,977 5,341,804 5,637,053 5,882,046 6,119,363 6,399,073 6,639,922

Accounts payable 1,104,000 1,056,000 1,385,000 1,115,865 1,148,299 1,181,811 1,216,438 1,252,222 1,287,956 1,323,577 1,359,018 1,394,212 1,429,091

Taxes payable 62,000 517,000 98,000 285,574 294,843 304,182 314,041 324,446 335,162 346,127 357,158 368,417 379,871

Accrued liabilities 3,049,000 2,951,000 2,895,000 3,101,271 3,191,415 3,284,552 3,380,790 3,480,242 3,579,557 3,678,557 3,777,057 3,874,870 3,971,807

Deferred revenues 9,824,000 10,155,000 10,821,000 11,074,140 11,396,031 11,728,608 12,072,258 12,427,386 12,782,024 13,135,534 13,487,262 13,836,540 14,182,686

Other current liabilities 5,476,000 6,072,000 4,392,000 5,318,459 5,473,050 5,632,774 5,797,815 5,968,368 6,138,687 6,308,463 6,477,384 6,645,128 6,811,368

Total current liabilities 23,412,000 24,911,000 27,583,000 25,822,914 26,003,755 26,884,411 27,829,320 28,794,469 29,760,440 30,674,304 31,577,242 32,518,241 33,414,745

Non-current liabilities

Long-term debt 21,457,000 24,483,000 25,725,000 23,493,248 24,810,767 26,353,412 27,887,358 29,428,733 30,707,739 31,946,673 33,406,928 34,664,297 35,807,097


Minority interest 9,000 (1,000) - - - - - - - - - - -

Other long-term liabilities 3,438,000 2,356,000 2,700,000 2,978,606 3,065,185 3,154,638 3,247,070 3,342,588 3,437,975 3,533,059 3,627,663 3,721,608 3,814,711

Total non-current liabilities 30,263,000 33,155,000 36,098,000 31,950,509 33,513,855 35,310,487 37,106,877 38,919,461 40,469,302 41,978,210 43,707,077 45,231,188 46,638,338

Total liabilities 53,675,000 58,066,000 63,681,000 57,773,423 59,517,610 62,194,898 64,936,197 67,713,929 70,229,742 72,652,514 75,284,319 77,749,429 80,053,083

Stockholders' equity

Common stock 43,592,000 44,516,000 45,253,000 45,264,714 45,276,429 45,288,143 45,299,857 45,311,571 45,323,286 45,335,000 45,346,714 45,358,429 45,370,143

Retained earnings 16,045,000 19,396,000 20,838,000 25,055,530 30,820,690 36,491,813 42,085,315 47,618,718 53,098,624 58,428,600 63,611,787 68,650,022 73,544,326

Accumulated other comprehensive income 61,000 (326,000) 46,000 (123,000) (123,000) (123,000) (123,000) (123,000) (123,000) (123,000) (123,000) (123,000) (123,000)

Total stockholders' equity 59,698,000 63,586,000 66,137,000 70,197,244 75,974,119 81,656,956 87,262,172 92,807,289 98,298,910 103,640,600 108,835,501 113,885,451 118,791,469

Total liabilities and stockholders' equity 113,373,000 121,652,000 129,818,000 127,970,667 135,491,728 143,851,854 152,198,369 160,521,218 168,528,652 176,293,114 184,119,820 191,634,880 198,844,552

CISCO SYSTEMS INC.

Common Size Income Statement


Revenue 100% 100% 100% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of revenue 34.66% 32.77% 32.28% 31.97% 31.66% 31.35% 31.04% 30.73% 30.42% 30.11% 29.80% 29.49% 29.18%

Gross profit 65.34% 67.23% 67.72% 68.03% 68.34% 68.65% 68.96% 69.27% 69.58% 69.89% 70.20% 70.51% 70.82%

Operating Expenses

Research and development 12.63% 12.78% 12.62% 12.59% 12.59% 12.59% 12.59% 12.59% 12.59% 12.59% 12.59% 12.59% 12.59%

Sales, General and administrative 24.13% 23.22% 23.28% 24.19% 24.19% 24.19% 24.19% 24.19% 24.19% 24.19% 24.19% 24.19% 24.19%

Depreciation and Amortization 4.97% 4.37% 4.76% 5.62% 5.78% 5.97% 6.13% 6.28% 6.41% 6.53% 6.64% 6.74% 6.82%

Restructuring, merger and acquisition 0.98% 0.54% 1.57% 0.81% 0.81% 0.81% 0.81% 0.81% 0.81% 0.81% 0.81% 0.81% 0.81%

Other operating expenses 0.73% 0.62% 0.54% 0.69% 0.69% 0.69% 0.69% 0.69% 0.69% 0.69% 0.69% 0.69% 0.69%

Total operating expenses 43.43% 41.53% 42.78% 43.90% 44.06% 44.24% 44.41% 44.56% 44.69% 44.80% 44.92% 45.01% 45.09%

Operating income 21.91% 25.71% 24.94% 24.14% 24.28% 24.41% 24.55% 24.71% 24.89% 25.09% 25.29% 25.50% 25.73%

Non Operating Expenses

Interest Expense 1.15% 1.37% 1.79% 1.85% 1.90% 1.94% 1.99% 2.04% 2.09% 2.15% 2.21% 2.27% 2.34%

Other income (expense) 2.03% 1.90% 2.45% 2.44% 2.42% 2.40% 2.38% 2.36% 2.34% 2.33% 2.32% 2.30% 2.29%

Income before taxes 22.78% 26.24% 25.60% 24.73% 24.81% 24.87% 24.95% 25.04% 25.14% 25.27% 25.39% 25.53% 25.68%

Provision for income taxes 4.52% 4.43% 5.58% 5.19% 5.21% 5.22% 5.24% 5.26% 5.28% 5.31% 5.33% 5.36% 5.39%

Net income 18.27% 21.81% 20.02% 19.54% 19.60% 19.65% 19.71% 19.78% 19.86% 19.96% 20.06% 20.17% 20.29%

CISCO SYSTEMS INC.

Common Size Balance Sheet


Cash and cash equivalents 13.99% 15.50% 24.39% 22.36% 31.48% 41.55% 50.90% 59.54% 67.12% 73.83% 80.25% 85.82% 90.60%

Short-term investments 108.91% 118.03% 122.45% 123.22% 123.31% 123.39% 123.45% 123.50% 123.65% 123.91% 124.28% 124.75% 125.33%

Receivables 10.87% 11.87% 10.72% 10.94% 10.94% 10.94% 10.94% 10.94% 10.94% 10.94% 10.94% 10.94% 10.94%

Inventories 3.31% 2.47% 3.37% 3.19% 3.19% 3.19% 3.19% 3.19% 3.19% 3.19% 3.19% 3.19% 3.19%

Deferred income taxes 0.00% 0.00% 0.00%

Other current assets 12.17% 11.98% 13.43% 11.81% 11.81% 11.81% 11.81% 11.81% 11.81% 11.81% 11.81% 11.81% 11.81%

Total current assets 149.24% 159.85% 174.36% 171.52% 180.73% 190.87% 200.29% 208.98% 216.71% 223.68% 230.47% 236.51% 241.88%

Non-current assets

Property, plant and equipment

Gross property, plant and equipment 25.28% 25.51% 26.70% 32.97% 38.28% 43.65% 49.02% 54.37% 59.71% 65.04% 70.38% 75.72% 81.04%

Accumulated Depreciation -18.50% -18.39% -19.78% -24.95% -30.03% -35.14% -40.27% -45.41% -50.56% -55.73% -60.91% -66.11% -71.32%

Net property, plant and equipment 6.78% 7.12% 6.92% 8.02% 8.25% 8.51% 8.75% 8.96% 9.15% 9.31% 9.47% 9.61% 9.73%

Equity and other investments 0.00% 0.00% 0.00%

Goodwill 49.77% 54.06% 62.01% 60.59% 58.88% 57.21% 55.58% 53.99% 52.49% 51.08% 49.75% 48.49% 47.31%

Intangible assets 4.83% 5.08% 5.29% 5.57% 5.57% 5.57% 5.57% 5.57% 5.57% 5.57% 5.57% 5.57% 5.57%

Deferred income taxes 9.06% 8.73% 8.83% 6.86% 6.88% 6.90% 6.92% 6.95% 6.98% 7.01% 7.05% 7.09% 7.13%

Other long-term assets 10.93% 12.19% 13.02% 11.94% 11.94% 11.94% 11.94% 11.94% 11.94% 11.94% 11.94% 11.94% 11.94%

Total non-current assets 81.38% 87.18% 96.06% 92.98% 91.52% 90.13% 88.76% 87.41% 86.13% 84.91% 83.78% 82.70% 81.67%

Total assets 230.62% 247.02% 270.43% 260.48% 268.00% 276.47% 284.19% 291.16% 297.20% 302.53% 307.72% 312.20% 316.04%

Liabilities and stockholders' equity

Liabilities

Current liabilities

Short-term debt 7.93% 8.45% 16.65% 10.03% 8.90% 9.13% 9.43% 9.69% 9.94% 10.09% 10.23% 10.42% 10.55%

Accounts payable 2.25% 2.14% 2.89% 2.27% 2.27% 2.27% 2.27% 2.27% 2.27% 2.27% 2.27% 2.27% 2.27%

Taxes payable 0.13% 1.05% 0.20% 0.58% 0.58% 0.58% 0.59% 0.59% 0.59% 0.59% 0.60% 0.60% 0.60%

Accrued liabilities 6.20% 5.99% 6.03% 6.31% 6.31% 6.31% 6.31% 6.31% 6.31% 6.31% 6.31% 6.31% 6.31%

Deferred revenues 19.98% 20.62% 22.54% 22.54% 22.54% 22.54% 22.54% 22.54% 22.54% 22.54% 22.54% 22.54% 22.54%

Other current liabilities 11.14% 12.33% 9.15% 10.83% 10.83% 10.83% 10.83% 10.83% 10.83% 10.83% 10.83% 10.83% 10.83%

Total current liabilities 47.62% 50.58% 57.46% 52.56% 51.44% 51.67% 51.96% 52.23% 52.48% 52.64% 52.78% 52.98% 53.11%

Non-current liabilities 0.00% 0.00% 0.00%

Long-term debt 43.65% 49.71% 53.59% 47.82% 49.08% 50.65% 52.07% 53.38% 54.15% 54.82% 55.83% 56.47% 56.91%

Deferred taxes liabilities 0.00% 0.00% 0.00%

Deferred revenues 10.90% 12.83% 15.98% 11.15% 11.15% 11.15% 11.15% 11.15% 11.15% 11.15% 11.15% 11.15% 11.15%

Minority interest 0.02% 0.00% 0.00%

Other long-term liabilities 6.99% 4.78% 5.62% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06%

Total non-current liabilities 61.56% 67.32% 75.20% 65.04% 66.29% 67.86% 69.29% 70.59% 71.37% 72.04% 73.05% 73.69% 74.13%

Total liabilities 109.18% 117.91% 132.65% 117.60% 117.73% 119.53% 121.25% 122.82% 123.85% 124.68% 125.82% 126.66% 127.23%

Stockholders' equity 0.00% 0.00% 0.00%

Common stock 88.67% 90.39% 94.27% 117.60% 117.73% 119.53% 121.25% 122.82% 123.85% 124.68% 125.82% 126.66% 127.23%

Retained earnings 32.64% 39.39% 43.41% 51.00% 60.96% 70.13% 78.58% 86.37% 93.64% 100.27% 106.32% 111.84% 116.89%

Accumulated other comprehensive income 0.12% -0.66% 0.10% -0.25% -0.24% -0.24% -0.23% -0.22% -0.22% -0.21% -0.21% -0.20% -0.20%

Total stockholders' equity 121.43% 129.12% 137.77% 142.89% 150.28% 156.94% 162.94% 168.34% 173.35% 177.85% 181.90% 185.53% 188.80%

Total liabilities and stockholders' equity 230.62% 247.02% 270.43% 260.48% 268.00% 276.47% 284.19% 291.16% 297.20% 302.53% 307.72% 312.20% 316.04%

CISCO SYSTEMS INC.

Cash Flow

Fiscal Years Ending July. 31 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

Cash Flows From Operating Activities

Net Income 9,597,479 9,909,021 10,222,868 10,554,213 10,903,906 11,264,043 11,632,534 12,003,268 12,381,659 12,766,589

Depreciation & amortization 2,761,212 2,923,493 3,103,879 3,283,971 3,463,552 3,636,328 3,803,861 3,972,737 4,134,889 4,290,452

12,358,691 12,832,514 13,326,747 13,838,184 14,367,459 14,900,371 15,436,395 15,976,005 16,516,548 17,057,041

Changes

Receivables (229,364) (156,245) (161,432) (166,807) (172,378) (172,141) (171,593) (170,728) (169,538) (168,019)

Inventories 46,442 (45,622) (47,137) (48,706) (50,333) (50,264) (50,104) (49,851) (49,504) (49,060)

Deferred income taxes - - - - - - - - - -

Other current assets 649,062 (168,586) (174,183) (179,983) (185,993) (185,737) (185,146) (184,213) (182,930) (181,290)

Deferred income taxes 867,857 (109,430) (110,240) (116,386) (122,831) (126,499) (129,433) (130,221) (132,911) (135,208)

Change in operating assets 1,333,996 (479,884) (492,992) (511,882) (531,535) (534,640) (536,277) (535,013) (534,883) (533,576)

Accounts payable (269,135) 32,435 33,511 34,627 35,784 35,734 35,621 35,441 35,194 34,879

Taxes payable 187,574 9,270 9,339 9,859 10,405 10,716 10,964 11,031 11,259 11,454

Accrued liabilities 206,271 90,144 93,137 96,238 99,452 99,315 98,999 98,500 97,814 96,937

Deferred revenues (1,941,205) 481,139 497,111 513,663 530,818 530,087 528,401 525,737 522,074 517,394

Other current liabilities 926,459 154,591 159,723 165,041 170,553 170,318 169,777 168,921 167,744 166,240

Change in operating liabilities (890,037) 767,579 792,821 819,429 847,012 846,170 843,762 839,630 834,084 826,903

Net Cash Flow from Operating activities 12,802,650 13,120,209 13,626,577 14,145,731 14,682,936 15,211,901 15,743,880 16,280,621 16,815,750 17,350,368

Cashflow from Investing activities

Net property, plant and equipment (616,393) (231,466) (257,289) (256,870) (256,142) (246,435) (238,957) (240,873) (231,282) (221,883)

Intangible assets (196,809) (79,522) (82,161) (84,897) (87,732) (87,612) (87,333) (86,893) (86,287) (85,514)

Other long-term assets 382,274 (170,528) (176,189) (182,055) (188,135) (187,876) (187,278) (186,334) (185,036) (183,377)

Short-term investments (1,752,549) (1,804,798) (1,858,605) (1,914,016) (1,971,080) (2,029,844) (2,090,361) (2,152,681) (2,216,860) (2,282,952)

Net Cashflow from Investing activities (2,183,476) (2,286,314) (2,374,244) (2,437,839) (2,503,089) (2,551,766) (2,603,929) (2,666,781) (2,719,465) (2,773,726)

CASHFLOW FROM Financing activities

Short Term Debt (3,064,394) (427,490) 252,370 295,492 293,826 295,249 244,993 237,317 279,711 240,848

Long Term Debt (2,231,752) 1,317,519 1,542,645 1,533,946 1,541,375 1,279,006 1,238,935 1,460,254 1,257,370 1,142,800

Other long-term liabilities 278,606 86,579 89,453 92,432 95,519 95,387 95,083 94,604 93,945 93,103

Common stock (11,714) (11,714) (11,714) (11,714) (11,714) (11,714) (11,714) (11,714) (11,714) (11,714)

Dividend paid (6,314,652) (6,868,194) (7,422,130) (7,976,464) (8,531,201) (9,086,344) (9,742,330) (10,398,798) (11,055,749) (11,713,186)

Net Cashflow from Investing activities (11,343,906) (5,903,301) (5,549,377) (6,066,308) (6,612,196) (7,428,416) (8,175,034) (8,618,337) (9,436,438) (10,248,149)

Net Cash Change (724,732) 4,930,595 5,702,956 5,641,584 5,567,651 5,231,719 4,964,917 4,995,504 4,659,848 4,328,493

Beginning Cash 11,708,000 10,983,268 15,913,864 21,616,819 27,258,403 32,826,054 38,057,773 43,022,690 48,018,194 52,678,042

Ending Cash 10,983,268 15,913,864 21,616,819 27,258,403 32,826,054 38,057,773 43,022,690 48,018,194 52,678,042 57,006,534

CISCO SYSTEMS INC.

Cash Flow Statement

Fiscal Years Ending July. 31 2015 2016 2017

Cash Flows From Operating Activities

Net income 7,853,000 9,983,000 8,041,000

Depreciation & amortization 2,439,000 2,460,000 2,208,000

Investments losses (gains) (299,000) (91,000) 363,000

Deferred income taxes (678,000) (37,000) (314,000)

Stock based compensation 1,348,000 1,120,000 1,401,000

Accounts receivable 340,000 (1,001,000) 272,000

Inventory (109,000) 218,000 (287,000)

Accounts payable (23,000) 164,000 (7,000)

Accrued liabilities - 134,000 (101,000)

Income taxes payable 191,000 (239,000) 418,000

Other working capital 1,309,000 231,000 (493,000)

Other non-cash items (39,000) (48,000) (10,000)

Net cash provided by operating activities 12,332,000 12,894,000 11,491,000

Cash Flows From Investing Activities

Investments in property, plant, and equipment (1,275,000) (1,160,000) (1,126,000)

Property, plant, and equipment reductions 232,000 141,000 50,000

Acquisitions, net (2,989,000) (6,766,000) (375,000)

Purchases of investments (36,701,000) (36,833,000) (42,162,000)

Sales/Maturities of investments 34,066,000 32,708,000 39,440,000

Other investing activities 24,000 142,000 358,000

Net cash used for investing activities (6,643,000) (11,768,000) (3,815,000)

Cash Flows From Financing Activities

Debt issued 7,981,000 24,000

Debt repayment (3,276,000) (16,000) (557,000)

Common stock issued 1,907,000 3,338,000 1,372,000

Common stock repurchased (9,843,000) (2,773,000) (4,560,000)

Excess tax benefit from stock based compensation 118,000 92,000 60,000

Dividend paid (3,758,000) (3,310,000) (1,501,000)

Other financing activities (17,000) (355,000) (353,000)

Net cash provided by (used for) financing activities (6,888,000) (3,000,000) (5,539,000)

Net change in cash (1,199,000) (1,874,000) 2,137,000

Cash at beginning of period 7,925,000 9,799,000 7,662,000

Cash at end of period 6,726,000 7,925,000 9,799,000

Free Cash Flow

Operating cash flow 12,332,000 12,894,000 11,491,000

Capital expenditure (1,275,000) (1,160,000) (1,126,000)

Free cash flow 11,057,000 11,734,000 10,365,000

CISCO SYSTEMS INC.

Key Management Ratios


Liquidity Ratios

Current Assets 84,264,678 91,370,525 99,314,837 107,265,933 115,213,368 122,883,072 130,345,193 137,898,171 145,176,850 152,186,663

/Current Liabilities 25,822,914 26,003,755 26,884,411 27,829,320 28,794,469 29,760,440 30,674,304 31,577,242 32,518,241 33,414,745

= Current Ratio 3.26 3.51 3.69 3.85 4.00 4.13 4.25 4.37 4.46 4.55

Cash and cash Equivalent + Accounts

Receivables + Stinvestments 82,695,119 89,755,344 97,652,520 105,554,910 113,452,012 121,071,453 128,483,470 135,986,596 143,215,772 150,176,525

/current Liabilities 25,822,914 26,003,755 26,884,411 27,829,320 28,794,469 29,760,440 30,674,304 31,577,242 32,518,241 33,414,745

= Quick Ratio 3.20 3.45 3.63 3.79 3.94 4.07 4.19 4.31 4.40 4.49

Cash and Cash Equivalents 71,519,817 78,255,210 85,816,771 93,372,371 100,911,101 108,172,664 115,227,942 122,376,128 129,252,835 135,864,280

/Current Liabilities 25,822,914 26,003,755 26,884,411 27,829,320 28,794,469 29,760,440 30,674,304 31,577,242 32,518,241 33,414,745

Cash Ratio 2.77 3.01 3.19 3.36 3.50 3.63 3.76 3.88 3.97 4.07

Activity or Asset-Management Ratios

Annual Sales 49,128,000 50,556,000 52,031,404 53,555,934 55,131,380 56,704,655 58,272,926 59,833,290 61,382,783 62,918,385

/ Avg. AR 5,260,682 5,453,487 5,612,325 5,776,445 5,946,038 6,118,297 6,290,164 6,461,325 6,631,458 6,800,236

=AR turnover 9.34 9.27 9.27 9.27 9.27 9.27 9.26 9.26 9.26 9.25

Number of days 365 365 366 365 365 365 366 365 365 365

/AR Turnover 9.34 9.27 9.27 9.27 9.27 9.27 9.26 9.26 9.26 9.25

AVG.Collection Period 39.08 39.37 39.48 39.37 39.37 39.38 39.51 39.42 39.43 39.45

Cost of Goods Sold 15,705,184 16,004,962 16,310,746 16,622,631 16,940,709 17,248,358 17,544,747 17,829,057 18,100,486 18,358,256

/Avg. Inventory 1,592,779 1,592,369 1,638,749 1,686,670 1,736,190 1,786,488 1,836,672 1,886,649 1,936,326 1,985,608

=Inventory Turnover 9.86 10.05 9.95 9.86 9.76 9.65 9.55 9.45 9.35 9.25

Financial Leverage Ratios

Total Debt+PV of Operating Leases 31,473,953 32,449,634 34,332,704 36,252,669 38,180,935 39,850,867 41,433,155 43,231,846 44,872,884 46,363,405

/Total Assets 127,970,667 135,491,728 143,851,854 152,198,369 160,521,218 168,528,652 176,293,114 184,119,820 191,634,880 198,844,552

=Debt Ratio 24.59% 23.95% 23.87% 23.82% 23.79% 23.65% 23.50% 23.48% 23.42% 23.32%

Total Debt 28,420,854 29,310,882 31,105,897 32,935,335 34,770,537 36,344,792 37,828,719 39,526,290 41,063,371 42,447,019

/Total Equity 70,197,244 75,974,119 81,656,956 87,262,172 92,807,289 98,298,910 103,640,600 108,835,501 113,885,451 118,791,469

=Debt to Equity Ratio 40.49% 38.58% 38.09% 37.74% 37.47% 36.97% 36.50% 36.32% 36.06% 35.73%

Profitability Ratios

(Sales-COGS) 33,422,816 34,551,038 35,720,658 36,933,304 38,190,672 39,456,297 40,728,179 42,004,234 43,282,297 44,560,130

/Sales 49,128,000 50,556,000 52,031,404 53,555,934 55,131,380 56,704,655 58,272,926 59,833,290 61,382,783 62,918,385

Gross Margin 68.03% 68.34% 68.65% 68.96% 69.27% 69.58% 69.89% 70.20% 70.51% 70.82%

Net Income 9,597,479 9,909,021 10,222,868 10,554,213 10,903,906 11,264,043 11,632,534 12,003,268 12,381,659 12,766,589

/Sales 49,128,000 50,556,000 52,031,404 53,555,934 55,131,380 56,704,655 58,272,926 59,833,290 61,382,783 62,918,385

Net Profit Margin 19.54% 19.60% 19.65% 19.71% 19.78% 19.86% 19.96% 20.06% 20.17% 20.29%

Net Income 9,597,479 9,909,021 10,222,868 10,554,213 10,903,906 11,264,043 11,632,534 12,003,268 12,381,659 12,766,589

/Average Total Assets 128,894,334 131,731,198 139,671,791 148,025,112 156,359,794 164,524,935 172,410,883 180,206,467 187,877,350 195,239,716

Return on Assets 7.45% 7.52% 7.32% 7.13% 6.97% 6.85% 6.75% 6.66% 6.59% 6.54%

Net Income 9,597,479 9,909,021 10,222,868 10,554,213 10,903,906 11,264,043 11,632,534 12,003,268 12,381,659 12,766,589

/Average Total Equity 68,167,122 73,085,681 78,815,537 84,459,564 90,034,731 95,553,100 100,969,755 106,238,050 111,360,476 116,338,460

Return on Equity 14.08% 13.56% 12.97% 12.50% 12.11% 11.79% 11.52% 11.30% 11.12% 10.97%

Payout Policy Ratio

Dividend Paid 6,314,652 6,868,194 7,422,130 7,976,464 8,531,201 9,086,344 9,742,330 10,398,798 11,055,749 11,713,186

/Net Income 9,597,479 9,909,021 10,222,868 10,554,213 10,903,906 11,264,043 11,632,534 12,003,268 12,381,659 12,766,589

=Dividend Payout Ratio 65.79% 69.31% 72.60% 75.58% 78.24% 80.67% 83.75% 86.63% 89.29% 91.75%

CISCO SYSTEMS INC.

Value Driver Estimation


Cost of Debt

Marginal Tax Rate Calculations

Federal Statutory Rate 35.00% 35.00% 35.00% 21.00% 21.00% 21.00% 21.00% 21.00% 21.00% 21.00% 21.00% 21.00% 21.00%

Foreign rate differential -15.20% -14.50% -13.40% -13.40% -13.40% -13.40% -13.40% -13.40% -13.40% -13.40% -13.40% -13.40% -13.40%

State income taxes, net of federal effect 0.80% 0.50% 1.10% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68%

Marginal Tax Rate 20.60% 21.00% 22.70% 8.28% 8.28% 8.28% 8.28% 8.28% 8.28% 8.28% 8.28% 8.28% 8.28%

EBITA Calculations

Net Revenue 49,161,000 49,247,000 48,005,000 49,128,000 50,556,000 52,031,404 53,555,934 55,131,380 56,704,655 58,272,926 59,833,290 61,382,783 62,918,385

Less: Cost of Sales 17,038,000 16,137,000 15,495,000 15,705,184 16,004,962 16,310,746 16,622,631 16,940,709 17,248,358 17,544,747 17,829,057 18,100,486 18,358,256 Less: Research and Development

expenses 6,207,000 6,296,000 6,059,000 6,183,771 6,363,514 6,549,224 6,741,118 6,939,420 7,137,449 7,334,848 7,531,252 7,726,288 7,919,575 Less: Selling, Marketing, general And

administrative 11,861,000 11,433,000 11,177,000 11,885,027 12,230,488 12,587,417 12,956,231 13,337,363 13,717,969 14,097,364 14,474,847 14,849,699 15,221,192

Less: Other Operating expenses 359,000 303,000 259,000 336,735 346,522 356,635 367,085 377,883 388,667 399,416 410,111 420,732 431,257 Add: Implied interest on operating

leases 58,571 53,837 163,338

EBITA 13,754,571 15,131,837 15,178,338 15,017,284 15,610,513 16,227,381 16,868,870 17,536,006 18,212,212 18,896,550 19,588,023 20,285,578 20,988,106

Less Adjusted Income Taxes

Provision for Income Taxes 2,220,000 2,181,000 2,678,000 2,551,229 2,634,043 2,717,471 2,805,550 2,898,507 2,994,239 3,092,193 3,190,742 3,291,327 3,393,650 Add: Tax shield on Restructuring

charges 99,704 56,280 171,612 33,005 33,964 34,955 35,980 37,038 38,095 39,148 40,197 41,238 42,269

Add: Tax shield on interest expense 116,596 141,960 195,447 75,242 79,380 83,746 88,352 93,212 98,338 103,747 109,453 115,473 121,824 Add: Tax shield on Operating Lease

expense 12,066 11,306 37,078 - - - - - - - - - -

Less: Tax on interest income (205,382) (196,560) (266,725) (99,354) (101,420) (103,530) (105,683) (107,881) (110,125) (112,416) (114,754) (117,141) (119,578)

Adjusted Income Taxes 2,242,984 2,193,986 2,815,412 2,560,122 2,645,968 2,732,643 2,824,199 2,920,875 3,020,547 3,122,672 3,225,638 3,330,897 3,438,166

Add Change in Deferred Taxes

DT Liabilities - - - - - - - - - - - - -

DT Assets 4,454,000 4,299,000 4,239,000 3,371,143 3,480,573 3,590,813 3,707,199 3,830,030 3,956,529 4,085,962 4,216,184 4,349,095 4,484,303

Net changes to DT (4,454,000) (4,299,000) (4,239,000) (3,371,143) (3,480,573) (3,590,813) (3,707,199) (3,830,030) (3,956,529) (4,085,962) (4,216,184) (4,349,095) (4,484,303)

Change in DT 54,000 155,000 60,000 867,857 (109,430) (110,240) (116,386) (122,831) (126,499) (129,433) (130,221) (132,911) (135,208)

NOPLAT 11,565,587 13,092,852 12,422,926 13,325,018 12,855,116 13,384,498 13,928,285 14,492,300 15,065,166 15,644,445 16,232,164 16,821,770 17,414,731

Operating Current Assets

Cash on Balance Sheet 6,877,000 7,631,000 11,708,000 10,983,268 15,913,864 21,616,819 27,258,403 32,826,054 38,057,773 43,022,690 48,018,194 52,678,042 57,006,534

Accounts receivable, net 5,344,000 5,847,000 5,146,000 5,375,364 5,531,609 5,693,041 5,859,849 6,032,227 6,204,367 6,375,961 6,546,689 6,716,227 6,884,246

Inventories 1,627,000 1,217,000 1,616,000 1,569,558 1,615,180 1,662,317 1,711,023 1,761,356 1,811,620 1,861,723 1,911,574 1,961,078 2,010,138

Other current assets 5,981,000 5,899,000 6,449,000 5,799,938 5,968,525 6,142,707 6,322,690 6,508,683 6,694,421 6,879,567 7,063,780 7,246,710 7,427,999

Total Operating Current Asset 19,829,000 20,594,000 24,919,000 23,728,129 29,029,178 35,114,885 41,151,965 47,128,320 52,768,180 58,139,941 63,540,237 68,602,056 73,328,917

Operating Current Liabilities

Accounts payable 1,104,000 1,056,000 1,385,000 1,115,865 1,148,299 1,181,811 1,216,438 1,252,222 1,287,956 1,323,577 1,359,018 1,394,212 1,429,091

Income taxes payable 62,000 517,000 98,000 285,574 294,843 304,182 314,041 324,446 335,162 346,127 357,158 368,417 379,871

Accrued liabilities 3,049,000 2,951,000 2,895,000 3,101,271 3,191,415 3,284,552 3,380,790 3,480,242 3,579,557 3,678,557 3,777,057 3,874,870 3,971,807


Other current liabilities 5,476,000 6,072,000 4,392,000 5,318,459 5,473,050 5,632,774 5,797,815 5,968,368 6,138,687 6,308,463 6,477,384 6,645,128 6,811,368

Total Operating Current Liabilities 19,515,000 20,751,000 19,591,000 20,895,308 21,503,640 22,131,926 22,781,343 23,452,665 24,123,387 24,792,258 25,457,879 26,119,167 26,774,823

Net Operation Working Capital 314,000 (157,000) 5,328,000 2,832,821 7,525,538 12,982,959 18,370,622 23,675,655 28,644,794 33,347,683 38,082,358 42,482,889 46,554,094

Add

Net property, plant & equipment 3,332,000 3,506,000 3,322,000 3,938,393 4,169,859 4,427,148 4,684,018 4,940,160 5,186,595 5,425,552 5,666,425 5,897,707 6,119,590

Intangible assets, net 2,376,000 2,501,000 2,539,000 2,735,809 2,815,331 2,897,492 2,982,389 3,070,121 3,157,733 3,245,066 3,331,958 3,418,246 3,503,759

PV of Operating Leases 1,064,927 978,862 2,969,784 3,053,099 3,138,752 3,226,807 3,317,333 3,410,399 3,506,075 3,604,436 3,705,556 3,809,513 3,916,386 Othe Long Term Assets 5,374,000 6,002,000 6,249,000 5,866,726 6,037,253 6,213,442 6,395,497 6,583,632 6,771,508 6,958,786 7,145,121 7,330,157 7,513,534

Total 12,146,927 12,987,862 15,079,784 15,594,026 16,161,194 16,764,889 17,379,237 18,004,313 18,621,911 19,233,840 19,849,060 20,455,622 21,053,269

Less


Other long-term liabilities 3,438,000 2,356,000 2,700,000 2,978,606 3,065,185 3,154,638 3,247,070 3,342,588 3,437,975 3,533,059 3,627,663 3,721,608 3,814,711

Total 8,797,000 8,673,000 10,373,000 8,457,261 8,703,088 8,957,075 9,219,519 9,490,728 9,761,563 10,031,537 10,300,150 10,566,891 10,831,241

Invested Capital 3,663,927 4,157,862 10,034,784 9,969,586 14,983,645 20,790,773 26,530,341 32,189,240 37,505,142 42,549,986 47,631,268 52,371,620 56,776,122

Return on Invested Capital:

NOPLAT 11,565,587 13,092,852 12,422,926 13,325,018 12,855,116 13,384,498 13,928,285 14,492,300 15,065,166 15,644,445 16,232,164 16,821,770 17,414,731

Beginning Invested Capital 3,500,495 3,663,927 4,157,862 10,034,784 9,969,586 14,983,645 20,790,773 26,530,341 32,189,240 37,505,142 42,549,986 47,631,268 52,371,620

ROIC 330.40% 357.34% 298.78% 132.79% 128.94% 89.33% 66.99% 54.63% 46.80% 41.71% 38.15% 35.32% 33.25%

Economic Profit: Begin IC * ( ROIC -

WACC)

Beginning Invested Capital 3,500,495 3,663,927 4,157,862 10,034,784 9,969,586 14,983,645 20,790,773 26,530,341 32,189,240 37,505,142 42,549,986 47,631,268 52,371,620

ROIC 330.40% 357.34% 298.78% 132.79% 128.94% 89.33% 66.99% 54.63% 46.80% 41.71% 38.15% 35.32% 33.25%

WACC 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23%Economic Profit 11,277,497 12,791,310 12,080,734 12,499,156 12,034,619 12,151,344 12,217,205 12,308,853 12,415,991 12,557,772 12,730,300 12,901,717 13,104,547

FCF: NOPLAT+Change in Invested

Capital

NOPLAT 11,565,587 13,092,852 12,422,926 13,325,018 12,855,116 13,384,498 13,928,285 14,492,300 15,065,166 15,644,445 16,232,164 16,821,770 17,414,731

Add: Beg Invested Capital 3,500,495 3,663,927 4,157,862 10,034,784 9,969,586 14,983,645 20,790,773 26,530,341 32,189,240 37,505,142 42,549,986 47,631,268 52,371,620

Less: Current Invested Capital 3,663,927 4,157,862 10,034,784 9,969,586 14,983,645 20,790,773 26,530,341 32,189,240 37,505,142 42,549,986 47,631,268 52,371,620 56,776,122 FCF 11,402,155 12,598,916 6,546,005 13,390,216 7,841,057 7,577,370 8,188,718 8,833,401 9,749,264 10,599,600 11,150,882 12,081,419 13,010,229

CISCO SYSTEMS INC.

Weighted Average Cost of Capital (WACC) Estimation

WACC =[Re * (E/V)]+[Rd *(1-t)*(D/V)] WACC 8.23%

Re = Cost of Equity

Rd = Pretax Cost of Debt

E = Market Value of Equity

D = Value of Debt

V = E + D

t = Marginal Tax Rate

Cost of Equity

Rf 3.06% 30 year Treasury rate

E(Rm) - Rf 4.80% Market Premium

Beta ᵝ 1.245

Raw weekly 2 year beta -

Bloomberg

Re 9.04%

Cost of Debt (Pre Tax)

Rd 5.50%

Market Value of Equity

Shares Outstanding 5,010,000

Share Price 42.42

E 212,524,200$

Value of Debt

Debt (Short & Long) 33,717,000

Pv of Operating Leases 2,969,784

D 36,686,784$

V 249,210,984$

Weight of Equity 85.28%

Weight of Debt 14.72%

Marginal Tax Rate 35.00%

WACC 8.23%

𝑅𝑒 = 𝑅𝑓 + 𝐵 𝐸 𝑅𝑚 − 𝑅𝑓

CISCO SYSTEMS INC.

Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs:

CV Growth 3.00% Beta 1

CV ROIC 34.06% Market Premium 4.80%

WACC 8.23% Cost of debt 5.50%

Cost of Equity 9.04%


DCF Model

Period 1 2 3 4 5 6 7 8 9 10

NOPLAT 13,325,018 12,855,116 13,384,498 13,928,285 14,492,300 15,065,166 15,644,445 16,232,164 16,821,770 17,414,731

CAPEX 65,198 (5,014,059) (5,807,128) (5,739,568) (5,658,899) (5,315,902) (5,044,844) (5,081,282) (4,740,351) (4,404,502)

FCF 13,390,216 7,841,057 7,577,370 8,188,718 8,833,401 9,749,264 10,599,600 11,150,882 12,081,419 13,010,229

Continuing Value 303,649,529

Free Cash flow 13,390,216 7,841,057 7,577,370 8,188,718 8,833,401 9,749,264 10,599,600 11,150,882 12,081,419 13,010,229

Pv of FCF 12,372,000 6,693,901 5,976,893 5,967,951 5,948,256 6,065,769 6,093,347 5,922,812 5,929,103 5,899,407

Pv of CV 149,019,700

Value of Operations discounted to 2018 209,989,733

Non Operating Assets

Excess Cash 11,708,000

Short term Investments 58,784,000

Total 70,492,000

Non Operating Liabilities

Pv of operating leases 2,969,784

Total Debt 33,717,000

PV of Employee Stock Options 369,550

Total 37,056,333

Equity Value 243,425,400

Total Shares Outstanding 5,010,000

Intrinsic Share Price 48.59$

Partial Year Adjustment 50.63$

Current Share Price 42.42$

EP ModelFiscal Years Ending 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

Period 1 2 3 4 5 6 7 8 9 10

NOPLAT 13,325,018 12,855,116 13,384,498 13,928,285 14,492,300 15,065,166 15,644,445 16,232,164 16,821,770 17,414,731

EP 12,499,156 12,034,619 12,151,344 12,217,205 12,308,853 12,415,991 12,557,772 12,730,300 12,901,717 13,104,547

CV 251,277,909

PV of EP 11,548,698 10,273,940 9,584,762 8,903,919 8,288,564 7,724,946 7,219,032 6,761,723 6,331,674 5,942,175

Pv of CV 123,317,691

Total PV of EP 199,954,949

Beginning Invested Capital 10,034,784

Value of Operating assets 209,989,733 -

Non Operating Assets

Excess Cash 11,708,000

Short term Investments 58,784,000

Total 70,492,000

Non Operating Liabilities

Pv of operating leases 2,969,784

Total Debt 33,717,000

PV of Employee Stock Options 369,550

Total 37,056,333

Equity Value 243,425,400 -

Total Shares Outstanding 5,010,000

Intrinsic Share Price 48.59

Partial Year Adjustment 50.63$

Current Share Price 42.42$

CISCO SYSTEMS INC.

Dividend Discount Model (DDM) or Fundamental P/E Valuation Model


1 2 3 4 5 6 7 8 9 10

EPS 1.92$ 1.98$ 2.04$ 2.10$ 2.17$ 2.24$ 2.32$ 2.39$ 2.46$ 2.54$

Dividend 1.26$ 1.37$ 1.48$ 1.59$ 1.70$ 1.81$ 1.94$ 2.07$ 2.20$ 2.33$

CV 38.60$

PV OF cashflows 1.16$ 1.15$ 1.14$ 1.12$ 1.10$ 1.08$ 1.06$ 1.04$ 1.01$

17.72$

Intrinsic Value 27.58$

Partial Year adjusted intrinsic value 28.74$

Key Assumptions

CV growth 3.00%

CV ROE 13.67%

Cost of Equity 9.04%

CISCO SYSTEMS INC.

Relative Valuation Models

EPS EPS

Ticker Company Price 2018E 2019E P/E 18 P/E 19

RDWR RADWARE LTD $21.60 $0.51 $0.80 66.5 43.9

EXTR EXTREME NETWORKS INC $10.79 $1.21 $1.72 10.1 9.0

ANET ARISTA NETWORKS INC $262.73 $8.14 $9.48 37.8 31.8

FFIV F5 NETWORKS INC $143.24 $10.29 $11.03 16.5 15.4

JNPR JUNIPER NETWORKS INC $24.35 $2.14 $2.29 13.6 11.4

NTGR NETGEAR INC $58.75 $3.61 $4.11 20.1 17.6

Average 27.4 21.5

CSCO CISCO SYSTEMS INC. $42.42 $1.92 $1.98 22.2 21.5

Implied Value:

Relative P/E (EPS18) $ 52.49 $56.51

Relative P/E (EPS19) 42.48$ $48.69

Partial Year Adjustment

Operating Operating Operating Operating

Fiscal Years Ending July. 31 Leases Fiscal Years Ending July. 31 Leases Fiscal Years Ending Leases Fiscal Years Ending Leases

2018 1,318,000 2017 1565000 2016 346000 2015 399,000

2019 813,000 2018 962000 2017 254000 2016 277,000

2020 438,000 2019 500000 2018 181000 2017 180,000

2021 283,000 2020 209000 2019 99000 2018 131,000

2022 9,000 2021 36000 2020 79000 2019 65,000

Thereafter 23,000 Thereafter 0 Thereafter 183000 Thereafter 187,000

Total Minimum Payments 2,884,000 Total Minimum Payments 3272000 Total Minimum Payments 1142000 Total Minimum Payments 1,239,000

Less: Interest 279,923 Less: Interest 302216 Less: Interest 163138 Less: Interest 174,073

PV of Minimum Payments 2,604,077 PV of Minimum Payments 2969784 PV of Minimum Payments 978862 PV of Minimum Payments 1,064,927

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 5.50% Pre-Tax Cost of Debt 5.50% Pre-Tax Cost of Debt 5.50% Pre-Tax Cost of Debt 5.50%

Number Years Implied by Year 6 Payment 2.6 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 2.3 Number Years Implied by Year 6 Payment 2.9

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 1318000 1249289.1 1 1565000 1483412.3 1 346000 327962.1 1 399,000 378,199

2 813000 730441.8 2 962000 864311.2 2 254000 228206.9 2 277,000 248,871

3 438000 373006.8 3 500000 425806.8 3 181000 154142.1 3 180,000 153,290

4 283000 228442.3 4 209000 168708.3 4 99000 79914.5 4 131,000 105,745

5 9000 6886.2 5 36000 27544.8 5 79000 60445.6 5 65,000 49,734

6 & beyond 9000 16010.9 6 & beyond 0 0.0 6 & beyond 79000 128190.9 6 & beyond 65,000 129,087

PV of Minimum Payments 2604077.1 PV of Minimum Payments 2969783.5 PV of Minimum Payments 978862.1 PV of Minimum Payments 1,064,927

Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012) Present Value of Operating Lease Obligations (2011

Operating Operating Operating

Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases

2014 367,000 2013 328000 2012 374000

2015 289,000 2014 243000 2013 259000

2016 150,000 2015 199000 2014 186000

2017 92,000 2016 97000 2015 153000

2018 68,000 2017 70000 2016 67000

Thereafter 183,000 Thereafter 202000 Thereafter 277000

Total Minimum Payments 1,149,000 Total Minimum Payments 1139000 Total Minimum Payments 1316000

Less: Interest 160,505 Less: Interest 169035 Less: Interest 210550

PV of Minimum Payments 988,495 PV of Minimum Payments 969965 PV of Minimum Payments 1105450

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 5.50% Pre-Tax Cost of Debt 5.50% Pre-Tax Cost of Debt 5.50%

Number Years Implied by Year 6 Payment 2.7 Number Years Implied by Year 6 Payment 2.9 Number Years Implied by Year 6 Payment 4.1

Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 367000 347867.3 1 328000 310900.5 1 374000 354502.4

2 289000 259652.7 2 243000 218323.9 2 259000 232699.2

3 150000 127742.0 3 199000 169471.1 3 186000 158400.1

4 92000 74263.9 4 97000 78300.0 4 153000 123504.2

5 68000 52029.1 5 70000 53559.4 5 67000 51264.0

6 & beyond 68000 126939.9 6 & beyond 70000 139409.7 6 & beyond 67000 185079.8

PV of Minimum Payments 988495.1 PV of Minimum Payments 969964.6 PV of Minimum Payments 1105449.6

Present Value of Operating Lease Obligations

(2016)Present Value of Operating Lease Obligations (2017)

Present Value of Operating Lease Obligations (2015 Present Value of Operating Lease Obligations (2014)

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 12,000

Average Time to Maturity (years): 6.30

Expected Annual Number of Options Exercised: 1,905

Current Average Strike Price: 6.15$

Cost of Equity: 9.04%

Current Stock Price: $42.42

2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Increase in Shares Outstanding: 1,905 1,905 1,905 1,905 1,905 1,905 1,905 1,905 1,905 1,905

Average Strike Price: 6.15$ 6.15$ 6.15$ 6.15$ 6.15$ 6.15$ 6.15$ 6.15$ 6.15$ 6.15$

Increase in Common Stock Account: 11,714 11,714 11,714 11,714 11,714 11,714 11,714 11,714 11,714 11,714

Change in Treasury Stock 11,714 11,714 11,714 11,714 11,714 11,714 11,714 11,714 11,714 11,714

Expected Price of Repurchased Shares: 42.42$ 46.25$ 50.43$ 54.99$ 59.96$ 65.38$ 71.28$ 77.72$ 84.75$ 92.41$

Number of Shares Repurchased: 276 253 232 213 195 179 164 151 138 127

Shares Outstanding (beginning of the year) 5,010,000 5,011,629 5,013,280 5,014,953 5,016,644 5,018,354 5,020,079 5,021,820 5,023,574 5,025,340

Plus: Shares Issued Through ESOP 1,905 1,905 1,905 1,905 1,905 1,905 1,905 1,905 1,905 1,905

Less: Shares Repurchased in Treasury 276 253 232 213 195 179 164 151 138 127

Shares Outstanding (end of the year) 5,011,629 5,013,280 5,014,953 5,016,644 5,018,354 5,020,079 5,021,820 5,023,574 5,025,340 5,027,118

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol CSCO

Current Stock Price $42.42

Risk Free Rate 3.06%

Current Dividend Yield 2.66%

Annualized St. Dev. of Stock Returns 23.95%

Average Average B-S Value

Range of Number Exercise Remaining Option of Options

Outstanding Options of Shares Price Life (yrs) Price Granted

Range 1 12,000 6.15 6.30 30.80$ 369,550$

Total 12,000 6.15$ 6.30 37.35$ 369,550$

50.63 2.1000% 2.1500% 2.2000% 2.2500% 2.3000% 2.3500% 2.4000% 2.4500% 2.50% 2.5500% 2.6000% 2.6500% 2.7000% 2.7500% 2.8000% 2.8500% 2.9000%

26.06% 46.30 46.46 46.63 46.80 46.97 47.14 47.32 47.50 47.68 47.87 48.06 48.25 48.45 48.65 48.86 49.06 49.28

27.06% 46.38 46.55 46.72 46.89 47.06 47.24 47.42 47.61 47.79 47.98 48.18 48.37 48.57 48.78 48.99 49.20 49.41

28.06% 46.46 46.63 46.80 46.98 47.16 47.34 47.52 47.70 47.89 48.09 48.28 48.48 48.69 48.89 49.11 49.32 49.54

29.06% 46.54 46.71 46.88 47.06 47.24 47.42 47.61 47.80 47.99 48.19 48.38 48.59 48.79 49.00 49.22 49.44 49.66

30.06% 46.61 46.78 46.96 47.14 47.32 47.50 47.69 47.88 48.08 48.28 48.48 48.68 48.89 49.11 49.32 49.54 49.77

31.06% 46.67 46.85 47.03 47.21 47.39 47.58 47.77 47.96 48.16 48.36 48.57 48.77 48.99 49.20 49.42 49.64 49.87

32.06% 46.73 46.91 47.09 47.28 47.46 47.65 47.84 48.04 48.24 48.44 48.65 48.86 49.07 49.29 49.51 49.74 49.97

33.06% 46.79 46.97 47.15 47.34 47.53 47.72 47.91 48.11 48.31 48.52 48.73 48.94 49.16 49.38 49.60 49.83 50.06

34.06% 46.85 47.03 47.21 47.40 47.59 47.78 47.98 48.18 48.38 48.59 48.80 49.01 49.23 49.45 49.68 49.91 50.15

35.061% 46.90 47.08 47.27 47.45 47.65 47.84 48.04 48.24 48.45 48.66 48.87 49.08 49.30 49.53 49.76 49.99 50.23

36.061% 46.95 47.13 47.32 47.51 47.70 47.90 48.10 48.30 48.51 48.72 48.93 49.15 49.37 49.60 49.83 50.07 50.30

37.061% 46.99 47.18 47.37 47.56 47.75 47.95 48.15 48.36 48.57 48.78 48.99 49.21 49.44 49.67 49.90 50.14 50.38

38.061% 47.03 47.22 47.41 47.60 47.80 48.00 48.20 48.41 48.62 48.83 49.05 49.27 49.50 49.73 49.96 50.20 50.45

39.061% 47.08 47.26 47.45 47.65 47.85 48.05 48.25 48.46 48.67 48.89 49.11 49.33 49.56 49.79 50.03 50.27 50.51

40.061% 47.11 47.30 47.50 47.69 47.89 48.09 48.30 48.51 48.72 48.94 49.16 49.39 49.61 49.85 50.08 50.33 50.57

41.061% 47.15 47.34 47.54 47.73 47.93 48.14 48.34 48.56 48.77 48.99 49.21 49.44 49.67 49.90 50.14 50.38 50.63

42.061% 47.19 47.38 47.57 47.77 47.97 48.18 48.39 48.60 48.81 49.03 49.26 49.49 49.72 49.95 50.19 50.44 50.69

50.63 2.10% 2.15% 2.20% 2.25% 2.30% 2.35% 2.40% 2.45% 2.50% 2.55% 2.60% 2.65% 2.70% 2.75% 2.80% 2.85% 2.90%

5.036% 45.66 45.84 46.02 46.20 46.39 46.58 46.77 46.96 47.16 47.36 47.57 47.78 47.99 48.21 48.43 48.65 48.88

5.536% 45.81 45.99 46.17 46.35 46.54 46.73 46.92 47.12 47.31 47.52 47.72 47.93 48.15 48.36 48.59 48.81 49.04

6.036% 45.96 46.14 46.32 46.50 46.69 46.88 47.07 47.27 47.47 47.67 47.88 48.09 48.30 48.52 48.74 48.97 49.20

6.536% 46.11 46.29 46.47 46.65 46.84 47.03 47.22 47.42 47.62 47.82 48.03 48.24 48.46 48.68 48.90 49.13 49.36

7.036% 46.26 46.44 46.62 46.80 46.99 47.18 47.37 47.57 47.77 47.98 48.19 48.40 48.61 48.83 49.06 49.28 49.52

7.536% 46.40 46.58 46.77 46.95 47.14 47.33 47.53 47.72 47.93 48.13 48.34 48.55 48.77 48.99 49.21 49.44 49.67

8.036% 46.55 46.73 46.91 47.10 47.29 47.48 47.68 47.88 48.08 48.28 48.49 48.71 48.92 49.14 49.37 49.60 49.83

8.536% 46.70 46.88 47.06 47.25 47.44 47.63 47.83 48.03 48.23 48.44 48.65 48.86 49.08 49.30 49.53 49.76 49.99

9.036% 46.85 47.03 47.21 47.40 47.59 47.78 47.98 48.18 48.38 48.59 48.80 49.01 49.23 49.45 49.68 49.91 50.15

9.536% 46.99 47.17 47.36 47.55 47.74 47.93 48.13 48.33 48.53 48.74 48.95 49.17 49.39 49.61 49.84 50.07 50.30

10.036% 47.14 47.32 47.51 47.69 47.89 48.08 48.28 48.48 48.68 48.89 49.10 49.32 49.54 49.76 49.99 50.22 50.46

10.536% 47.29 47.47 47.65 47.84 48.03 48.23 48.43 48.63 48.84 49.04 49.26 49.47 49.69 49.92 50.15 50.38 50.62

11.036% 47.43 47.61 47.80 47.99 48.18 48.38 48.58 48.78 48.99 49.20 49.41 49.63 49.85 50.07 50.30 50.54 50.77

11.536% 47.58 47.76 47.95 48.14 48.33 48.53 48.73 48.93 49.14 49.35 49.56 49.78 50.00 50.23 50.46 50.69 50.93

12.036% 47.72 47.91 48.09 48.28 48.48 48.68 48.88 49.08 49.29 49.50 49.71 49.93 50.15 50.38 50.61 50.85 51.09

12.536% 47.87 48.05 48.24 48.43 48.63 48.82 49.02 49.23 49.44 49.65 49.86 50.08 50.31 50.53 50.77 51.00 51.24

13.036% 48.01 48.20 48.39 48.58 48.77 48.97 49.17 49.38 49.59 49.80 50.02 50.24 50.46 50.69 50.92 51.16 51.40

50.63 4.23% 4.73% 5.23% 5.73% 6.23% 6.73% 7.23% 7.73% 8.23% 8.73% 9.23% 9.73% 10.23% 10.73% 11.23% 11.73% 12.23%

4.04% 200.50 143.03 111.39 91.38 77.60 67.55 59.89 53.88 49.03 45.05 41.71 38.89 36.46 34.36 32.52 30.90 29.47

4.54% 201.16 143.50 111.76 91.68 77.86 67.77 60.09 54.06 49.19 45.19 41.85 39.01 36.58 34.47 32.63 31.01 29.56

5.04% 201.82 143.97 112.12 91.98 78.11 67.99 60.29 54.23 49.35 45.34 41.99 39.14 36.70 34.59 32.74 31.11 29.66

5.54% 202.48 144.44 112.49 92.28 78.37 68.21 60.48 54.41 49.51 45.49 42.12 39.27 36.82 34.70 32.84 31.21 29.76

6.04% 203.13 144.91 112.85 92.58 78.62 68.43 60.68 54.59 49.67 45.64 42.26 39.40 36.94 34.81 32.95 31.31 29.85

6.54% 203.79 145.38 113.22 92.88 78.88 68.65 60.87 54.76 49.83 45.78 42.40 39.52 37.06 34.92 33.06 31.41 29.95

7.04% 204.44 145.84 113.58 93.18 79.13 68.87 61.07 54.94 49.99 45.93 42.53 39.65 37.18 35.04 33.16 31.51 30.05

7.54% 205.09 146.31 113.94 93.47 79.38 69.09 61.27 55.11 50.15 46.08 42.67 39.78 37.30 35.15 33.27 31.61 30.14

8.04% 205.75 146.77 114.30 93.77 79.63 69.31 61.46 55.29 50.31 46.22 42.80 39.90 37.42 35.26 33.37 31.71 30.24

8.54% 206.40 147.24 114.66 94.07 79.88 69.53 61.65 55.46 50.47 46.37 42.94 40.03 37.53 35.37 33.48 31.81 30.33

9.04% 207.04 147.70 115.02 94.36 80.14 69.75 61.85 55.64 50.63 46.51 43.07 40.16 37.65 35.48 33.59 31.91 30.43

9.54% 207.69 148.16 115.38 94.66 80.39 69.97 62.04 55.81 50.79 46.66 43.21 40.28 37.77 35.59 33.69 32.01 30.52

10.04% 208.34 148.62 115.74 94.95 80.64 70.19 62.23 55.98 50.95 46.81 43.34 40.41 37.89 35.70 33.80 32.11 30.62

10.54% 208.99 149.08 116.10 95.25 80.89 70.41 62.43 56.16 51.11 46.95 43.48 40.53 38.01 35.82 33.90 32.21 30.71

11.04% 209.63 149.55 116.46 95.54 81.14 70.62 62.62 56.33 51.26 47.10 43.61 40.66 38.12 35.93 34.00 32.31 30.81

11.54% 210.28 150.00 116.82 95.84 81.39 70.84 62.81 56.50 51.42 47.24 43.75 40.78 38.24 36.04 34.11 32.41 30.90

12.04% 210.92 150.46 117.18 96.13 81.64 71.06 63.01 56.68 51.58 47.39 43.88 40.91 38.36 36.15 34.21 32.51 31.00

12.54% 211.56 150.92 117.53 96.42 81.88 71.27 63.20 56.85 51.74 47.53 44.01 41.03 38.47 36.26 34.32 32.61 31.09

13.04% 212.20 151.38 117.89 96.71 82.13 71.49 63.39 57.02 51.89 47.67 44.15 41.16 38.59 36.37 34.42 32.71 31.19

13.54% 212.84 151.84 118.25 97.01 82.38 71.71 63.58 57.19 52.05 47.82 44.28 41.28 38.71 36.48 34.53 32.81 31.28

Cost of

Equity

CV Growth

CV ROIC

CV Growth

Cost of

Equity

WACC

Documents

Cisco Systems Inc. (CSCO) April 8, 2018 - biz.uiowa.edu · portfolio of solutions which can be delivered from the cloud ... This includes a Cisco’s Unified Computing System (Cisco