How Cisco Makes Money? Understanding Cisco Business Model

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Cisco is a global leader in the networking and communications equipments market. Cisco offers products and services for transporting data, voice, and video traffic across intranets, extranets, and the Internet. Cisco offers products in following categories: Switching, Next-Generation Network (NGN) Routing, Collaboration, Service Provider Video, Data Center, Wireless, Security, and Other Products. Cisco also provides technical support and advanced services.

Cisco Product Groups FY 2015

Cisco Product Offerings

Cisco offers a broad range of products in each of the product categories.

  • Switching. Switches help connect computers, printers, and servers within a building or a campus. Cisco offers fixed-configuration switches and modular switches. Fixed-configuration switches function as a single switching unit, whereas Modular switches offer flexibility and scalability to deploy numerous networking services. Cisco also includes storage products in the Switching product category.
  • NGN Routing. Routers link computers to Internet. Cisco offers high-end routers to Service providers and midrange and Low-end routers to enterprises, small to medium size businesses, and consumers at home. Cisco high-end routers include Aggregation Services Routers (ASRs), Carrier Routing Systems (CRS), and Network Convergence System (NCS). Cisco Midrange to Low-end routers include Integrated Services Routers (ISRs). Cisco Other NGN Routing products include optical networking products.
  • Collaboration. In the Collaboration category, Cisco offers products in the following areas: Unified Communications; Telepresence; Conferencing; and Mobile Messaging. Key solutions include IP phones, mobile applications, customer care, web conferencing, messaging, and Cisco TelePresence systems.
  • Service Provider Video. In the Service Provider Video category, Cisco offers products in following areas: Infrastructure and Cable Access; Software and Solutions. Key products include Set-top boxes, Cable modems, Connected Life platforms, Digital content management and distribution products, and Video processing systems.
  • Data Center. Cisco Unified Computing System (UCS) and Server Virtualization form the core of Cisco’s Data Center products. The UCS platform includes a range of blade servers, rack servers, modular servers, server chassis, fabric extenders, and network adapters. Cisco also offers solutions for private and hybrid cloud.
  • Wireless. Cisco Wireless solutions include wireless access points; Wireless LAN (local-area network) controllers; and a wide range of mobility services and solutions.
  • Security. Cisco Security solutions include network and data center security, advanced malware protection (AMP), web and email security, access and policy, firewalls, VPN Security clients, unified threat management, and advisory, integration, and managed services.
  • Other Products. Cisco Other Products category consists of certain emerging technologies and other networking products.

Cisco also provides a broad range of service offerings that include technical support services and advanced services. Cisco helps its customers plan, build and deploy, and then manage its products. In the planning phase, Cisco offers strategy and analysis services, assessment services, and design services. In the build phase, Cisco offers validation services, deployment services, and migration services. In the manage phase, Cisco offers product support services, solution support services, optimization services, and operations management services.

Cisco Customer Segments

Cisco offers its products to the following customers segments.

  • Service Providers. Service Providers include Telecommunication Carriers and Internet, Cable, and Wireless Service Providers. Service providers offer voice, data, and video communication services to businesses and consumers.
  • Enterprises. Enterprises include large regional, national, or global organizations with multiple locations and more than 1,000 employees.
  • Commercial. Commercial businesses include midsize and small businesses that have fewer than 1000 employees. Midsize businesses have 100 to 1000 employees. Small businesses have fewer than 100 employees.
  • Public Sector. Public Sector includes federal governments, state and local governments, and educational institutions.

Key Elements Of Cisco Business Model

Cisco offers a broad range of products within each of the product categories. For its different customer segments, the products vary as per the functionality offered. For example, Cisco offers high-end routers to service providers, whereas midrange to low-end routers to enterprises and commercial segments. The following diagram shows the Cisco product offerings for each of its customer segments. Only key product areas in different product categories are listed. Cisco generates revenues primarily through the sales of its products and related services.

Cisco sells its products and services either through its channel partners or through its direct salesforce. Cisco channel partners include system integrators, service providers, other resellers, and distributors. System integrators and service providers sell Cisco network equipments directly to end users and often provide related support services as well. On the other hand, distributors stock inventory and sell it to system integrators, service providers, and other resellers. Cisco refers to sales through distributors as its two-tier system of sales to the end customer.

Cisco Business Model FY 2015

Cisco Revenues by Product Groups FY 2015

Cisco fiscal year ends on the last Saturday of the month of July. For FY 2015 (year ending July 2015), Cisco generated $49.2 billion of total revenues. Of these total revenues, Cisco generated

  • $14.7 billion revenues, 30.0% of the total, from the switching products category.
  • $7.7 billion revenues, 15.7% of the total, from the NGN routing products category.
  • $4.0 billion revenues, 8.1% of the total, from the collaboration products category.
  • $3.6 billion revenues, 7.2% of the total, from the service provider video products category.   
  • $3.2 billion revenues, 6.5% of the total, from the data center products category.
  • $2.5 billion revenues, 5.2% of the total, from the wireless products category.
  • $1.7 billion revenues, 3.6% of the total, from the security products category.
  • $239 million revenues, 0.5% of the total, from the other products category.   

In total, Cisco generated $37.8 billion, 76.8% of the total, from the products business. Cisco generated $11.4 billion revenues, 23.2% of the total, from the services business.

Cisco Revenues by Product Groups FY 2015

Cisco Revenues, Profits, and Profit Margins FY 2015

Of the $49.2 billion of Cisco total revenues in FY 2015, $19.5 billion were the cost of sales. This resulted in $29.7 billion of gross profit and a gross margin of 60.4%. Cisco other operating expenses were $18.9 billion. These include research and development, sales and marketing, general and administrative expenses. These also include amortization of purchased intangible assets and restructuring and other charges. This resulted in $10.8 billion of operating profit and an operating margin of 21.9%. After interest and other non-operating income and expenses and income taxes, Cisco had a net profit of $9.0 billion and a net margin of 18.3%.

Cisco Revenues Profits and Profit Margins FY 2015 v2

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