FOOL CONFERENCE CALL SYNOPSIS*
By Randy Befumo (MF Templar)

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %>
170 W. Tasman Dr.
San Jose, CA 95134-1706
(408) 526-4000
http://www.cisco.com/

UNION CITY, Ca., November 5, 1996/FOOLWIRE/ --- Net sales for the first quarter were $1,434.8 million, up 80 percent from last year's $798.3 million and 11 percent from last quarter's $1,292.2 million. Cisco was pleased with these results as industry analysts believe that the industry is growing at and 50 percent year-over-year and 3 percent sequentially. Net income, excluding costs related to the acquisition of Telebit and a one-time gain from the sale of stock, was $0.47 EPS. This was up 67.8 percent from $0.28 EPS a year ago and up 14.6 precent from $0.41 EPS last quarter. The result beat consensus estimates by one penny, or 2.1 percent. Cisco serves three markets -- enterprise, service provider and small-to-medium businesses.

ENTERPRISE MARKET. Cisco Systems strengthened its enterprise switching offerings with the addition of the Gigabit Ethernet switch from its Granite Systems acquisition and Token-Ring switching products from the Nasoshba Networks purchase. The recently closed acquisition of Telebit will add its MICA technology to Cisco's dial-up products, further enhancing its breadth. Cisco will also acquire NETSYS Technologies, a developer of network modeling software. Customers are still demanding comprehensive, end-to-end managed solutions meaning that they need to work with one provider who can give them everything they need. Previously, companies assembled their network peicemeal and maintained it themselves.

SERVICE PROVIDER MARKET. Cisco introduced a number of products that help Internet Service Providers (ISPs) scale and service their networks. Cisco also continues to introduce business solutions that enable these companies to do business with it, including the leasing arrangement recently announced with LEASING SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LSSI)") else Response.Write("(NASDAQ: LSSI)") end if %>. Cisco seeks to provide a fully-integrated Point-of-Presence (POP) to its customers.

SMALL-TO-MEDIUM BUSINESS MARKET. This quarter Cisco launched NetBeyond, a new, integrated set of solutions that deliver "high-performance" local-area network hubs and switches combined with Internet access. This allows companies to integrate their proprietary networks with the Internet by using routers, firewalls, gateways and dial-up access.

OTHER REVENUES & MARKET SHARE. Based on their analysis, they continue to grow faster year-over-year than their traditional competitors by gaining share in many of their markets. Approximately 48 percent of bookings came from outside the United States. Revenue for training, service and support was $84 million versus $74 million last quarter.

BOOKINGS & DEMAND. Overall, Cisco is pleased with the first quarter results in terms of bookings, revenues and profits. Their focus is on balancing market share with EPS growth, necessitating a careful mix of revenues, product mix, gross margins and expenses as well as investments in new opportunities. They did experience softness in orders in the middle quarter, similar to last year except it lasted about a week longer. This came on top of higher sales and marketing, the Stratacom integration and changes in sales management in each of their four theaters.

GROSS MARGINS & OPERATING COSTS. Gross margins held at 65 percent, the same level as last quarter. The company continues to have a mix shift towards LAN switching and access products. However, the impact on gross margins has been offset by ongoing cost reductions and additional material cost savings due to lower component prices. Total head count grew by 975 to 9,234 people. Operating expenses increased to 31.1 percent of sales which compares to last quarter's 30.6 percent, excluding merger related costs. Research and development was 10.1 percent versus 9.6 percent in the previous quarter. The tax rate decreased from 37.5 percent to 37 percent. This reflects the reinstated R&D tax credits and will continue for the rest of this fiscal year. Profit margins excluding one-time events was 22.4 percent, consistent with last quarter's 22.4 percent.

BOOK-TO-BILL & INVENTORY MANAGEMENT. Cisco's book-to-bill, a measure orders booked versus orders billed, was 1.0 as they continue to improve their lead times. They did this because this quarter they acheived the goal of one to three week lead times in most volume areas. Although they decrease backlogs, shorter lead times will improve customer satisfaction and revenue over the long term. Shorter lead times result in greater quarterly volatility, both above and below expectations.

BALANCE SHEET. Cash, short-term, long-term and restricted investments increased by $500 million to $2.6 billion. Although the Telebit acquisition closed at the end of the first quarter, the redemption of shares did not actually begin until the first week of the second quarter. Therefore, the cash will be paid out in the second quarter. Accounts receivable increased $130 million to $753 million. Days sales outstanding were 48 days compared with 43 days last quarter. Their goal is somewhere between 45 to 50 days, so they have been very pleased with the last several quarters results. Inventory was $244 million, down $57 million from $301 million last quarter. Inventory turns continue to improve due to a better supply of intergrated circuits, application specific integrated circuits and memory as well as their continued focus on inventory management.

STRATACOM INTEGRATION. Retention and integration of staff has gone better than expected with their attrition well below the Cisco's overall rate. The integration is largely completed with good activity levels in terms of Stratacom point products and as far as Stratacom becoming part of their vendor fabric in enterprise and service provider accounts. New customers for Stratacom were equal to the total number of new customers created during calendar 1995, when it was a stand-alone company. It will be two or three quarters before they know whether revenues will meet, beat or excede opportunities.

LIGHTSTREAM 1010 ATM SWITCH. With acquisitions and new products, Cisco believes that it takes two to three quarters before they can measure their success. One such product is the Lightstream 1010. The win rate with the Lightstream 1010 continues to improve since it was announced in late 1995. Quarter-over-quarter growth with the 1010 was 75 percent. Based on sales projections from analysts on the industry leader in workgroup ATM for their most recent quarter, Cisco is approaching 50 percent of the ATM run-rate.

ONE-TIME CHARGES AND BENEFITS. On October 24, 1996 Cisco completed its purchase of Telebit Corporation and its Modem ISDN Channel Aggregation (MICA) technologies. In order to complete this acquistion, the company took a one-time charge of $174.6 million, or $0.26 EPS, on an after-tax basis as a writeoff of in-process research and devleoment (R&D). Additionally, the Company realized a pretax gain of $55.1 million from the sale of a portion of one minority stock investment that contributed $0.05 EPS on an after-tax basis to net income for the quarter.

PROPOSITION 211'S MUZZLE. In light of the uncertain outcome of today's vote on Propisition 211, they are going to be much more cautious than they otherwise would. The Proposition casts doubt on the Safe Harbor legislation recently passed by Congress, under which they could give forward-looking guidance. With that in mind, they have eliminated most forward-looking guidance from the call and the question and answer session. If Proposition 211 is defeated today, they will return to their normal guidance.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.