Cisco's product gross margin dropped a whopping -10% over the past 5 quarters
Tue, 2/15/11 - 5:15am View comments
During Q1'FY10 Cisco reported a product gross margin of 65.47%. However fastforward 5 quarters to Q2'FY11, Cisco reported a product gross margin of only 58.93%.
65.47% - 58.93% = 6.54%
6.54% divided by 65.47% = .0998% (i.e. 10%)
That means Cisco's product gross margin has dropped a whopping -10% in just the past 5 quarters alone, see the chart below:
Cisco's sequential margin declines (highlighted in yellow)
So should Cisco shareholders be alarmed by Cisco's sequential margin declines?
Not according to Cisco CEO John Chambers!
And why's that?
Well, according to Cisco's Q2'FY11 earnings call transcript, John Chambers is creating a new management working group committee to address Cisco's margin issues:
"Now moving on to gross margins. As Frank discussed in the second Section, our decrease in gross margins was driven by a number of factors: Our primary focus in the areas that we contributed to a net favorable decrease and what we intend to do about it.
"As you'd expect we're forming a working group to expand our focus on improving gross margins and on becoming increasingly comfortable with our progress and future plans in this area, having reviewed it just last week after work on it for good little while."
However in my opinion the devil is in the details, especially since Chambers conveniently left out which of the 47 boards (each board has 14 people on average) listed below in Cisco's management structure the "new gross margin working group" will report to, or will it report to one of the 12 councils (each council has 14 people on average), perhaps it may even report to the 15 member operating committee.
Obviously, Cisco shareholders should feel very warm and fuzzy about Cisco's sequentially declining margin issues!
Cisco's sequential quarterly sales declines (highlighted in yellow)
