CISCO SYSTEMS, INC.   In Brief Cisco supplies the majority of the global Internet Protocol (IP) networking equipment in use today.  Management of the product line is allocated among four major divisions.  The next billion-dollar ideas are incubated in the Advanced Technologies division as “market adjacencies”—Cisco’s ideas for growth.  Three were added this quarter: virtual health, safety and security, and virtual communities.   Strengths Cisco’s “intelligent urbanization initiative” envisions the Internet as a fourth utility that will generate multi-billions in revenue.  These quotes sum it up:    “With the number of people living in urban areas growing from 3 billion today to 5 billion by 2030, urbanisation is a global trend impacting citizens, governments, and industries. This trend will also significantly impact the environment - the 20 most populous cities alone are responsible for 75 percent of the planet's energy consumption. In a world where all things are becoming connected, the network has become the next utility, enabling the holistic, intelligent and environmentally sustainable creation and management of cities, industries and public services."                                          --  John Chambers, CEO   "It is estimated technology can reduce carbon emissions by 15 percent by 2020; an environmental savings of 1 ton of CO2 per capita that translates into $946 billion in financial savings. Additionally, cities that run on information can improve their energy efficiency by 30 percent within 20 years."                                                     -- Wim Elfrink, EVP   Cisco hopes to gain the same kind of dominant position in this “Internet of things” that it has in the Internet-- networking and cable -- a 60 percent share of IP-based network infrastructure.   Cisco plans to reach into the home and provide a host of consumer services, from home energy management to home entertainment.  Its EnergyWise system is a software console / application platform for controlling phones, computers, lights, air conditioners and other energy-consuming devices for businesses. Cisco is encouraging partners to make applications and devices that sit on top of and interact with EnergyWise.   By lending strong support to standards for the industry, Cisco can facilitate its dominance in IP-based communications.    Cisco projects mobile data traffic will grow a thousand-fold during 2005-2012, a major factor in its Clearwire alliance in the data-centric 4G network.  Rapid deployment, including projections for 80 cities by 2010, is encouraging the likelihood that WiMax will become the communications network for the Smart Grid.   Challenges Cisco needs someone to lead their new Smart Grid division.  Head hunters have been beating the streets to find a General Manager.    Cisco is new in the conservative power industry space.  Experience, familiarity, and relationship-building take time.    Companies with Smart Grid interests are collaborating.  IBM, for instance, operates with similar assumptions and strategies to Cisco’s.   Networking equipment that connects buildings to utilities differs from corporate networking.  Corporations and utilities worried about security and performance may not want to open their networks to one another.  They may prefer the security of proprietary solutions.   Our View Cisco’s strength has been in catching trends early.  The Smart Grid market is part of its vision for connected architecture in the cities of the future.  If the vision and solutions provided are on target, Cisco can carry the Smart Grid build-out with it.     In five years or less, Cisco forecasts a billion dollars in sales in this category.  The company’s expected revenue for FY 2009 is close to $36 billion with margins near 64%, so this source of revenue can be an important contributor to the bottom line.   Cisco’s deep pockets (cash assets were $30 billion+ in January, 2009 and cash flow generation approximately 1 billion per month) and a strategy perfected in the ‘90s for buying expertise to round out development (it buys 15-20 private companies per year), suggests Cisco’s status as big gorilla isn’t in danger.  It’s likely to acquire companies that are strong in IP-based metering or distribution automation.  For example, in a recently sponsored competition, Cisco captured an idea for an IP framework where devices ask for power from the grid only when they need it, rather than passively consuming whatever is sent over.   With a standards-based IP network that can talk to any device at any location, Cisco can create the platform to manage and monetize it all. If Cisco has its way, the Smart Grid will look much more like telecomm and cable.  The network will be (in telecomm parlance) a “control plane” for billions of devices.  The network will manage the communications between those devices and, more importantly, host applications that are sent down to those devices on demand.

CISCO Systems, Inc. www.cisco.com   Industry:  Information Technology Established:  1984 Headquarters:  San Jose, CA Chairman & CEO:  John Chambers Chief Globalization Officer & EVP: Wim Elfrink Employees:  66,558 Trades: CSCO on the NASDAQ Exchange IPO:  Feb. 16,1990 Yield:  No dividend paid at this time Next Earnings Report Due:  Aug. 5   Products Product families include four segments with a percentage of sales in each category for Q3 09: ·       Switches (32%) ·       Routers (17%) ·       Advanced technologies (25%) —    Home networking —    Unified communications —    Security —    Storage area networking —    Wireless technology —    Application networking services —    Video systems ·       Other Products and Services (26%)   In the Field ·       Cisco’s IP NGN architecture to be used in Clearwire's 4G network for consumers and businesses.  Components include: 7600 Series routers, ONS 15454 and 15310 platforms, ASA Firewalls, and Service and Application Module for IP (SAMI) Home Agent – May 2009   ·       Energy Smart Miami - partnership with Florida Power & Light, GE (smart meters), Silver Spring Networks (wireless network communications) and Cisco’s communications platform to provide home management systems to 4.5 million customers – April 2009   ·       Intelligent Urbanisation initiative integrates Cisco's products, services, partners and solutions for global sustainable solutions for public safety and security, transportation, buildings, energy, healthcare and education – Feb. 2009   ·       IP-NGN platform to help Network Norway increase its capacity for mobile broadband services, monitor the performance of its network and offer customized data services, laptop data cards and flat-fee billing to its corporate customers – Feb. 2009   ·       Cisco EnergyWise reports and reduces energy consumption of IP devices such as phones, laptops and access points.  With industry partner solutions and a middleware acquisition, Richards-Zeta building Intelligence, power consumption can be managed for entire building systems - lights, elevators, and HVAC – Jan. 2009  ·       Supplying mobile WiMAX infrastructure to Russian wireless ISP Scartel, Georgian mobile operator MagtiCom, and AsiaBell's mobile WiMAX service in central Kazakhstan – 2008 & 2009   Institutional Shareholders 1506 institutional shareholders holding 74% of shares.  Top percentage holders: ·       Capital World Investors (4.86%) ·       Barclays Global Investors (4.25%) ·       State Street Corp (3.66%) ·       Vanguard Group (3.22%) ·       FMR LLC (2.85%) ·       Growth Fund of America Inc (2.72%) ·       Capital Research Global Investors (2.22%) ·       Bank of NY Mellon (1.92%) ·       Janus Capital Mgmt (1.62%) ·       Wellington Mgmt Co (1.55%)   Read more ·       Cisco White Paper: Cisco Energywise   ·       Smart Grid News: Cisco Award for Smart-Grid Concept   ·       Cisco News release: Everything Connected to the Network Can Be Greener with Cisco EnergyWise   ·       Greentech, Forbes.com: Cisco, GE Announce Smart Grid Play   ·       Cisco News release: Clearwire and Cisco Form Alliance to Deliver 4G Mobile Internet Services for Consumers and Business   ·       Smart Grid News: Can Utilities Have Their Cake and Eat it Too with the ICI Networks MISUR™ Router?