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Copyright 2007, Zacks Investment Research. All Rights Reserved.

Cisco Systems (CSCO NASDAQ) $29.8Note: All new or revised material since the last report is highlighted.

Reason for Report: Minor Model Revisions; Final Version PreviousEdition: May 23, 2007

Recent News-Summary

On July 10, 2007, CSCO, EMC and MSF announced the formation of an alliance of technology vendors.

On June27, 2007, CSCO unwired the Linux Symposium.

On June 14, 2007, CSCO and IBM announced an expansion of their alliance to centralize servicmanagement for service providers.

On June 14, 2007, CSCO announced the completion of the BroadWare Technologiesacquisition.

On May 29, 2007, CSCO announced the completion ofthe WebExacquisition.

On May 22, 2007, CSCO announced the completion of tender offer of WEBX.

On May 21, 2007, CSCO agreedto acquire privately-held BroadWare Technologies.

On May 08, 2007, CSCO reported its 3Q07 results.

Overview

Key investment considerations as identified by analysts are as follows:

Key Positive Arguments Key Negative Arguments

Strong Market Leadership:Cisco dominates datanetworking in the enterprise arena with end-to-endsolutions that offer total cost of ownershipadvantagesover competitors.

Enterprise Spending: Investment in newtechnologies has paid off as new products aregrowing rapidly.

Revenue Opportunity: Six key areas of growth(Security, VoIP, Wireless LAN, Optical, HomeNetworking, and Storage) have the potential togenerate billions in revenue per year.

SFA Acquisition: The acquisition of SFA isexpected to be accretive to FY07 earnings.

Saturating Markets:Growth in the enterprise datnetworking market is slowing, attributable to marksaturation and overcapacity.

Impact of New Technology: Growth in ne

technologies could have a smaller-than-expecteimpact on large revenue base.

Increased Competition: Commoditization of somproducts could hurt pricing, as competitors (e.gDell)releaselow-end products.

Pricing Pressure: The Company is expected tface increased pricing pressure as a number oAsian vendors (especially from China) begin to enteitsglobal markets.

July 13, 2007

Zacks Digest of Brokerage Editor: Ian Madsen, CFAResearch Tel.: 1-800-767-3771, ext. 399

Email: [email protected]

www.zacks.com 111 N. Canal Street, Suite 1101 Chicago, IL 60606
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Cisco Systems (CSCO or the Company), based in San Jose, California, is the leading provider of datnetworking equipment to enterprise and government customers with end-to-end solutions and is thfourth largest provider of equipment to telecommunications service providers. The Company s InterneProtocol (IP) based networking solutions form the foundation for the Internet.

The Company also provides networking products for transporting data, voice, and video withibuildings and across campuses and offers routers that interconnect computer networks by moving datavoice, and video from one network to another; and switching systems that are used to build local-arenetworks (LAN), metropolitan-area networks, and wide-area networks. Technology productscomprishome networking products that enable users to share Internet access, printers, music, movies, angames; Internet protocol telephony products for transmitting voice communications; optical networkinproducts, which provide a path for telecommunications carriers, as well as for carriers and enterprisesand security products, which protect information systems from unauthorized use. It also offers storagnetworking products that deliver connectivity between servers and storage systems. In addition, thCompany offers wireless LAN and outdoor wireless bridging products. For further information, pleasvisit: www.cisco.com.

Note: CSCO s fiscal year ends on July 31; fiscal references differ from the calendar year

Recent News

On July 10, 2007, CSCO, EMC and MSF announced the formation of an alliance of technology vendorthat will offer one of the most comprehensive, security-enhanced, commercial, multi-vendor, end- to-eninformation-sharing technology architectures for helping protect and share sensitive governmeninformation.

On June 27, 2007, Cisco announced that the Cisco Unified Wireless Network and its outdoor wirelesnetwork solutions will constitute the wireless access network of choice for Linux and open sourcenthusiasts who attend the Linux Symposium in Ottawa this week .

On June 14, 2007 CSCO and IBM announced an expansion of their existing strategic alliance to delivenew standards-based telecommunications service assurance and fault-management solutions.

On June 11, 2007 CSCO announced its completion of the acquisition of privately held BroadWarTechnologies, a leading provider of IP-based video surveillance software.

On May 29, 2007 CSCO announced the completion of its acquisition of WebEx Communications, Inc, market leader in on-demand collaboration applications.

On May 22, 2007, CSCO announced the completion of its tender offer for all outstanding shares oWebEx Communications, Inc. (WEBX).

On May 21, 2007, CSCO announced a definitive agreement to acquire privately-held BroadWarTechnologies, a leading provider of IP-based video surveillance software. BroadWare's software enableweb-based monitoring, management, recording and storage of audio and video that can be accesseanywhere by authorized users.

On May 08, 2007, CSCO reported 3Q07 results. Highlights are as follows:Net Sales: $8.9 billionNet Income: $1.9 billion GAAP; $2.1 billion non-GAAPEarnings per Share: $0.30 GAAP; $0.34 non-GAAP
http://www.cisco.com/http://www.zacks.com/

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Revenue

Total Rev. ($ in m)FY Ends July 31 2005A 2006A 1Q07A 2Q07A 3Q07A 4Q07E 2007E 2008E

Digest Average $24,801 $28,484 $8,184 $8,439 $8,866 $9,287 $34,776 $39,665

Digest High $24,801 $28,484 $8,185 $8,440 $8,866 $9,362 $34,851 $40,528

Digest Low $24,801 $28,480 $8,180 $8,439 $8,866 $9,221 $34,710 $38,650

Digest Average Y-o-Y Growth 14.8% 24.9% 27.3% 21.1% 16.3% 22.1% 14.1%

Quarterly growth 2.5% 3.1% 5.1% 4.8%

3Q07 total revenue was $8.9 billion, up 5% sequentially and 21% y/y, marking the sixth consecutivquarter of sequential growth and the fifteenth quarter of y/y growth. Revenue out performance was seeas driven by the Advanced Technologies and Other segments, primarily based on stronger-thanexpected Scientific-Atlanta (SFA) sales. Scientific-Atlanta, Inc., acquired on February 24, 2006contributed net sales of $752 million during 3Q07, compared with $407 million during 3Q06. The Ciscstand-alone revenue increase was approximately 17%, which continues to be one of the fastest standalone y/y revenue growth rates seen in several years.

Upside in the quarter was seen as broad-based across each of Cisco's business segments. One fir

believes Cisco will continue to post strong results in the next one to two quarters as it benefits fromcontinued market share gains,healthy backlog, and improved visibility.

According to analysts, ordergrowth continued to be very solid, with product book-to-bill of greater than 1Product order growth from a Cisco stand-alone perspective, that is not including Scientific Atlanta, grewin the mid-teens. Revenue growth from Scientific Atlanta was approximately 30% y/y, aligned to conformto Cisco's fiscal quarters.

Rev ($ in M)FY Ends July 31 3Q07A

Q/Q %Change

Y/Y %Change 4Q07E 2005A 2006A 2007E 2008E

Routers $1,763 5.2% 16.0% $1,901 $5,498 $6,005 $6,938 $7,844

Switches $3,087 2.5% 14.8% $3,217 $10,104 $10,843 $12,343 $13,557

Advanced Tech $2,082 8.1% 23.2% $2,239 $4,408 $6,032 $8,113 $9,973

Other $551 14.2% 114.4% $529 $843 $914 $2,011 $2,213

Product $7,481 5.4% 21.5% $7,760 $20,853 $23,918 $29,091 $33,147

Services $1,385 3.3% 18.7% $1,410 $3,948 $4,567 $5,374 $6,203

TOTAL REVENUE $8,866 5.1% 21.1% $9,287 $24,801 $28,484 $34,776 $39,665

Routers (20% of 3Q07 Total Revenue): Router revenue of $1.8 billion was up 5% sequentially an16% y/y, driven by strength in the high-end router portfolio consisting of the CRS-1, GRS, and 7600CRS-1 core router orders of $250 million demonstrated continued acceleration (revenue in 2Q07 wa$150 million, though order numbers were not given). According to Infonetics, Cisco increased its markeshare of the core router market to 59% in 3Q07, up from 58% q/q and 53% y/y. Cisco's edge routemarket share also increased to 52%, up from 51% q/q and 46% y/y.

Switches (35% of 3Q07 Total Revenue): Switches revenue stood at $3.1 billion, up 3% sequentialand 15% y/y. Management mentioned the Catalyst 6k family of switches is Cisco's largest single producfamily by revenue. Cisco s commentary surrounding U.S. enterprise was consistent with 2Q07, witbookings showing mid-single digit growth amidst a somewhat "cautious" spending environment. ThCompany highlighted positive growth in both its fixed and modular switching solutions during 3Q07though also highlighting the fact that forthcoming product refreshes could have tempered near-termdemand.

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Advanced Technology (23% of 3Q07 Total Revenue): Advanced Technology revenue of $2.1 billiowas up 8% sequentially and 23% y/y excluding Scientific-Atlanta's contribution to Advanced Technologrevenue of $589 million. Scientific-Atlanta revenue increased 32% y/y based on international expansiona shift to HD set-top boxes, network upgrades, and increased demand in anticipation of the July 1 FCCSeparable Security Deadline.

According to analysts, storage was again the fastest growing segment within Advanced Technologieposting y/y growth of 50%. SAN switching, Unified Communications (formerly Enterprise IP TelephonySecurity, and Wireless led the way. On a y/y basis, SAN switching order growth was 50%, followed bUnified Communications at ~37%, Security in the ~25% range and Wireless about 16%. The onlunderperformer was Networked Home (Linksys), which was roughly flat y/y.

Other(6% of 3Q07 Total Revenue): Other product revenue which includes access products, networmanagement software and miscellaneous parts,grew 13% q/q or 113% y/yto $546 million.

Product:3Q07product revenue increased 22% y/yto $7.5billion from $6.2 billion in 3Q06. Sequentiallyrevenue increased 5%from $7.1 billion in 2Q07.

Services(16% of 3Q07 Total Revenue): Services revenue of $1.4 billion was up 3% sequentially an19% y/y. As Cisco continues to expand its overall total addressable market opportunities (i.e. layerinmore and more intelligence into the IP-based network), the Company has also been focusing its attentio

on expanding its advanced/professional services organization.

Geographically: In terms of geographies, according to analysts, emerging markets continue to lead thway with order growth in the 40% range. Within emerging markets, Eastern Europe, the Middle EasRussia and Latin America all delivered solid order growth. Emerging markets continue to be the thirlargest theater behind the U.S. and Europe.

According to analysts, momentum in Europe continued with order growth in the low teens. Cisccommented that seven of the nine major regions in Europe delivered growth in the double digits.

Overall U.S. order growth was in the mid-teens. U.S. order growth in the service provider segment was ithe high 20% range. According to analysts, momentum in the U.S. service provider segment remain

strong based on the upgrade of networks to accommodate video. The commercial segment in the U.Sgrew 20% y/y. The enterprise business was described as mixed and delivered mid-single digit growththe same as 2Q07. Cisco did not offer too many constructive comments regarding the U.S. enterprisbusiness, only suggesting that it has stabilized.

Asia-Pacific performance was described as solid, with order growth in the 20% range. All five regions iAsia-Pacific did well with India delivering 50% year/year order growth.

Finally, Japan order growth, as expected, was down slightly based on the continued impact from thservice provider market.

Margins

Margins 3Q07AQ/Q%

ChangeY/Y%

Change 4Q07E 2005A 2006A 2007E 2008E

Gross 64.5% -0.2% -1.2% 64.5% 67.2% 66.7% 64.6% 64.7%

Operating 29.3% -0.8% -0.6% 28.8% 31.6% 30.7% 28.9% 29.5%

Pre Tax 31.8% -0.8% -0.3% 30.9% 33.9% 32.9% 31.1% 31.6%

Net 23.8% -0.8% -0.9% 23.5% 24.4% 23.5% 23.7% 24.0%

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3Q07 corporate gross margin of 64.5% (non-GAAP) was down 20 bps sequentially and 120 bps y/y duprimarily to increased Scientific-Atlanta sales and a decline in Services gross margin.

Product gross margin of 64.7% declined 10 bps sequentially based on the increased discounts and thas-expected impacts of higher Scientific Atlanta revenue, offset by volume and cost savings.

Service gross margin of 63.2% declined 120 bps sequentially due primarily to investments in headcounand advanced services making up a higher proportion of service revenue. Continued growth in advanceservices was attributed to momentum this year in service provider and emerging markets, as well as iadvanced technologies.

Headcount increased to 56,790, up from 54,563 last quarter and 48,296 a year ago. Managemenexpects to continue adding to headcount, particularly in emerging markets.

Operating expenses of $3.1 billion were up 7% sequentially and 9% y/y. Operating margin of 29.3%decreased 80 bps sequentially based on a decline in gross margin and operating expenses rising fastethan revenue.

3Q07 non-GAAP tax provision was 25%. Non-GAAP net income for 3Q07 was $2.1 billion compared t$1.8 billion in 3Q06, representing a 17% increase y/y.

Earnings per Share

3Q07 GAAP EPS was $0.30, up 37% y/yfrom $0.22 in 2Q06. Sequentially, GAAP EPS decreased 2%from $0.31 in 2Q07.

3Q07pro forma EPS was $0.34, up 16% from $0.29 in 3Q06. Sequentially, EPS increased 3% from$0.33 in 2Q07. Operating EPS excludes $0.03 of stock-based compensation expense and $0.01 ointangibles amortization.

FY Ends July 31 3Q06A 2Q07A 3Q07A 4Q07E 2005A 2006A 2007E 2008E

Zacks Consensus $0.32 $1.21 $1.43

Zacks Digest Model Max. $0.29 $0.34 $0.34 $0.36 $0.92 $1.10 $1.34 $1.60

Zacks Digest Model Min. $0.29 $0.30 $0.31 $0.31 $0.92 $0.95 $1.20 $1.34

Zacks Digest Model Avg. $0.29 $0.33 $0.34 $0.35 $0.92 $1.08 $1.31 $1.53

Company Guidance

The Companygave the following guidance for fiscal 4Q07 and FY2007. The guidance provided is on non-GAAP basis with reconciliation to GAAP and also includes the effect of Scientific Atlanta:

Management anticipates total revenue for 4Q07 to be in the range of $9.2 billion to $9.3 billionrepresenting a 15 to 16% growth y/y.

Management stated that forecasting gross margin has always been challenging based on various factorsuch as volume, product mix, variable component cost, customer and channel mix and competitivpricing pressures. According to management, total gross margin will remain at approximately 64.5%based on the continuing strength in Scientific Atlanta's business, which has a lower gross margin thaCisco's stand-alone portfolio of products.

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4Q07 operating expenses will be slightly below or above 35.5% of revenue. Interest and other incomare expected to be approximately $200 million in 4Q07. Operating margin is targeted at 29%-31% fo4Q07. Tax rate provision is expected to be approximately 25%.

The above guidance does not include the acquisitions of WebEx or IronPort. Assuming that thesacquisitions close halfway through the quarter, the incremental revenue would be approximately $5million with no impact to non-GAAP earnings per share.

Management expects share count to end 4Q07 up 40 million shares q/q.

Cash flow from operations is expected to generate $500 to $700 million per month at these revenues.

For FY2007, total sales are expected to increase 15%-16% y/y (ex-SFA). Management reiterated itlong-term target of 10%-15% YoY growth.

Target Price/Valuation

Of the 28 analysts reporting, 20gave positive ratings, 8 gave neutral ratings, while none gave negativratings. The Digest average price target of $32.39( from the previous Digest report, 8.36% upside fromthe current price) range from the Digest high target price of $35.00 (17.10% upside from the currenprice) and the Digest low target price of $26.50 (11.34% downside from the current price). Analysts havused several methods to value the stock with the most common valuation method being P/E multiples.

Rating Distribution

Positive 71.4%

Neutral 28.6%

Negative 0.0%

Avg. Target Price $32.39

Digest High $35.00

Digest Low $26.50

Analysts with Target Price/Total 22 /28

Metrics detailing management effectiveness are as follows:

Metrics (TTM) Company Industry S&P 500

Return On Assets (ROA) 15.12% 12.11% 8.26%

Return on Investments (ROI) 19.99% 17.59% 12.22%

Return on Equity (ROE) 26.15% 22.56% 20.60%

ROA, ROE, and ROI of 15.12%, 26.15%, and 19.99% arehigher than the averages (measured by thS&P 500) of 8.26%, 20.60%,and 12.22%, respectively. Thissuggeststhe Company isutilizing assets tearn well above its cost of capital.

Capital Structure/Solvency/Cash Flow/Governance/Other

Cash Flow

Cash flow from operations was $2.4 billion in 3Q07, compared with $2.3 billion in 3Q06 and $2.7 billion i2Q07.

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Capital Structure

Cash and cash equivalents and investments were $22.3 billion at the end of 3Q07, compared with $17.billion at the end of 4Q06 and $20.7 billion at the end of 2Q07.

Inventory and Debtors

Days sales outstanding in accounts receivable (DSO) at the end of 3Q07 were 33 days, compared wit38 days at the end of 4Q06, and compared with 31 days at the end of 2Q07.

Inventory turns on a GAAP basis were 8.8 in 3Q07, compared with 8.5 in 4Q06, and compared with 7.in 2Q07. Non-GAAP inventory turns were 8.6 in 3Q07, compared with 8.3 in 4Q06, and compared wit7.6 in 2Q07.

Share Repurchases

During 3Q07, Cisco repurchased 56 million shares of common stock at an average price of $26.85 peshare for an aggregate purchase price of $1.5 billion. As of April 28, 2007, Cisco had repurchased anretired 2.2 billion shares of Cisco common stock at an average price of $19.20 per share for aaggregate purchase price of approximately $41.7 billion since the inception of the stock repurchasprogram.

Acquisitions and Investments

Cisco completed the acquisitions of Five Across, Inc., Reactivity, Inc., NeoPath Networks, Inc. anSpansLogic, Inc. Cisco also announced that it completed the purchase of select assets of Utah StreeNetworks, Inc., the operator of the social networking site Tribe.net.

On May 29, 2007, Cisco announced the completion of its acquisition of WebEx Communications, IncWebEx is a market leader in on-demand collaboration applications, and its network-based solution fodelivering business-to-business collaboration extends Cisco's vision for Unified Communicationsparticularly within the small to medium business (SMB) segment. Longer-term, one firm believes therare clear opportunities for revenue synergies between Webex and Cisco such as integrating Webe

into Cisco s new telepresence solution although it believes this could take several months for thtechnologies to be fully integrated and for the channel to be up to speed on the new Webex products.

On June 11, 2007, Cisco announced it has completed the acquisition of privately held BroadWarTechnologies, a leading provider of IP-based video surveillance software. BroadWare's software enableweb-based monitoring, management, recording and storage of audio and video that can be accesseanywhere by authorized users. With the close of this acquisition, Cisco will be able to help customereasily gain access to live and recorded surveillance video for faster investigation response and evenresolution. According to analysts, the BroadWare acquisition complements Cisco's existing videsurveillance product offering, which provides a smooth migration path from analog surveillance video to digital network solution.

Analyst Day Highlights

Cisco management believes continued share gains from Avaya, Nortel, and Alcatel Lucent will help itsmall to medium (SMB) sales growth rate to continue to exceed the 17% end-market growth rate. believes that its commercial SMB business will be less correlated to overall GDP growth than thenterprise segments, which will likely help fuel private companies appetite for investments. Ciscbelieves the portion of carrier spending it addresses is growing around 24%. This strong end-markegrowth, coupled with continued share gains, in one of the brokerage firm s view, will drive earningforecast higher over the next six months. It believes the Company s market share in all its core businessegments will continue to grow and lead to greater stabilization.

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Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

The average long-term growth rate provided bybrokeragefirmsis 14.9%, ranging from 10.0% to 20.0%According to analysts, Cisco s strategy of providing integrated solutions is growing more and morcompelling, particularly for security, VoIP, and wireless LAN deployments, according to analysts who alsbelieve that as these markets mature it will become more difficult for the best-of-breed vendors to delivesubstantial benefits over other competitors. Simultaneously, as deployments expand beyond initial trialsit will become more important for enterprises to optimize the management of these technologies. Onfirm believes recent market trends favor Cisco s architectural approach, and that as enterprises layemore functionality (security, VoIP, WLAN) onto their networks, Cisco can be relied upon to deliver a higlevel of integration with underlying networks(switches and routers).

Some firms remain enthusiastic about Cisco s positioning to capitalize on new growth markets anbelieve itcontinues to execute well in the marketplace and should be one of the key beneficiaries fromimprovements in the technology-spending environment. Cisco s core business continues to recorgrowth, and italso continues to gain market share with several growth initiatives including VOIP, homnetworking, security, and storage, according to analysts. TheCompany combines operating disciplinand strategic product development to leverage its position as a premier technology provider and texecute in a number of emerging technology markets. The Company believes its ability to integratproducts and subsequently reduce customer total cost of ownershipwill be keysto success.

Upcoming Events

On August 8, 2007, CSCO is expected to release its4Q07 earnings.

This is not a research report. Readers of this report should not take investment action based on the contents of this report. This report represenZacks analysts understanding of the investment issues that professional investors consider when evaluating the investment attractiveness of thsubject company. This report is not a recommendation to buy, sell, or hold the stock of the subject company, nor is it a valuation of the stock othe company nor is it a forecast of future earnings, sales or stock performance of the company. Zacks employees, affiliates, officers and directomay have long or short positions in the stock of the subject company and may trade at any time in the stock or related derivatives without notice

Copy Editor: Joyoti D.

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