Q&A SESSION for Cisco Systems (NASDAQ:CSCO) (once again contextual rather than verbatim):

• Our earnings summary is here.
• If you want Chambers conference call notes before Q&A they are here.

GOLDMAN SACHS (Brant Thompson?)… Expand on US verticals markets?

• CHAMBERS: "Was solid, but did see some softness, and dramatic decreases year over year from major financial services and retail."

RBC Capital Markets…is it becoming more cumbersome because of law of large numbers?

• CHAMBERS: "Depends on how customers purchase but we think is easier now… doing extremely well in commercial market place where job growth is occurring.  Routing & Switching is lumpy but we’ve seen very solid growth.  We’ll be more right than conventional wisdom.  In terms of ability to move into markets…. actually as an architectural play and web 2.0 migration very comfortable with 12-17% projections."

UBS AG:  Back on enterprise market and look on global basis,when in 2005 the major inflections took a year to take off. Should welook at weakness in US Enterprise market and say it is likely torebound to double digit in a year or will it create a slowdown in restof world?

• CHAMBERS: "The dependency on the U.S. is not what it was beforeand emerging China-India are doing well.  Internal consumption is muchgreater than prior US-dependent cycles.  EU area forecast just gotraised.  Maybe 60% in top accounts is now going outside U.S.  Nothearing from customers a major concern.
• RICK: "reinforcing that we don’t see any reversal in outside U.S.markets and not seeing any major impact in rest of world…the coldisn’t spreading."
• CHAMBERS: "US enterprises have squeezed spending, and he’d be surprised if US enterprise doesn’t come back."

J.P.MORGAN: If rest of business is growing, sounds like you’d be above guidance if US enterprise customers come back?

• CHAMBERS: "Your concept is interesting and he wouldn’t disagreewith it…. assume we are being conservative.  The prior guidance wasalso conservative.  US Enterprise is now only 41% of US business now. "

MERRILL LYNCH: On switching…was about 34% of global revenuesand more than enterprise….can you explain sharp deceleration inswitching and what you assume there in the guidance? What can be doneto improve?

• CHAMBERS: "whatever number we give individually we are likely tobe off slightly on an individual component basis….. assume switchingwill have ebbs and flows and wouldn’t weigh one quarter too much…"

LEHMAN BROS: Beyond quarter and looking at emergingmarkets…investing in India… Talk about what has changed onphilosophy in China? Acceleration of Business and if so how quickly?

• Chambers: moved 20 executives there to India couple years ago.China is similar but different. Back in 1994 to 1995 his first CEO bigdecision was to invest heavily in China.  See very positive build outthere in provinces.  Also see an emerging software industry there andthey’ve made $500 million investments in Chinese software (includingAlibaba)…… Did strategic relationship with China Development Bankand view of Cisco has expanded compared to three years ago."
• NED: on partnerships and business development.." we have been aclose partner with many companies… believe market is at an inflectionpoint and they can export Chinese business models globally."

MORGAN STANLEY: At risk of beating dead horse… On USenterprise and seeing Q3 down again, felt better etc….. "How doesthat cross look now?"

• CHAMBERS: "Based on customer feedback, strength in overall USmarket was indicative of commercial.  On enterprise, the fact that somany were so negative he actually changed some of his own models.  Manywill wait to see what the economy is.  With a 30-50% chance ofrecession… that is a thing we all face….. economy to most customersfeels like more of a soft landing but won’t know for 6 months. Augustwas about where it was expected, US saw a somewhat soft in Septemberbut normal in October….."

JEFFERIES: Clarification, was there a gross margin impact on currencies? On wireless growth and impact?

• DENNIS: "currency had negligible impact."
• CHAMBERS: "wireless… always lumpy, don’t read too far into anyquarter….. doing wireless architecture across the board in 2008."
• CHARLIE: "wireless has been lumpy quarter to quarter, John isright as strategy is to drive wire to wireless. Up until now have beenseparate infrastructures.  Want to unify…. should be transparent toend user."
• CHAMBERS: "You are talking about a 41.7 Billion run rate andlumpiness was on 24% growth….don’t multiply that by 4 though."CREDITSUISSE: 2 clarifications…. on switching should the be a snap-back? Towhat extent was US weakness tied to financial and auto?

• CHAMBERS: "as far as modular it does have an effect, but it istied to enterprise spending.  As far as finance, that was hardest hit.Then the top 25 were hardest hit, and 8 are financial and two auto outof that top 25 accounts."

THOMAS WEISEL: global economy not as dependent on US but are you more cautious?

• CHAMBERS: "US service provider is not as dependent upon… raceis in early stages to build out broadband to accommodate video…. nottied as tightly to economy as a whole. Leaders there understand theopportunity, but would watch the US commercial market and make sure twoof three hold."  "None of us have seen the diminished importance androle the US is at now….feel good about global despite US weakness.Global economy may help the US out of a hole."  "We can handle two orthree of our 20 operations missing.  CEO’s will reach a point here thatthey have to innovate…. Have to evaluate trends for 2 to 5 years outrather than quarter to quarter."

Chambers ended the call and said thank you etc……………………FEB 6, 2008 is next quarter conference call.

24/7 WALL ST. TAKE: Ifyou want any conjecture here from someone who is neutral or at leastunbiased here, it sure seems like the trading community just doesn’tbelieve Chambers or that the community thinks the impending slowdown isworse than Chambers thinks it is going to be.  There is some obviousconcern about Cisco’s growth and the industry growth being sustainable,but it sure seems like traders are going with their own gut decisionsand opinions rather than what Chambers was telling them on the call.Wall Street has now flopped on its prior excitement literally in onetrading session….  Congratulations are in order for the Cowen &Co. analyst that gave this a neutral rating with competition heating and demand slowing.

Jon C. Ogg
November 7, 2007

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