Cisco 2011 Annual Report Download - page 67

Gross Margin by Segment
The following table presents the total gross margin for each segment (in millions, except percentages):
AMOUNT PERCENTAGE
Years Ended July 30, 2011 July 31, 2010 July 25, 2009 July 30, 2011 July 31, 2010 July 25, 2009
Gross margin:
United States and Canada ...... $14,618 $14,042 $12,660 63.2% 64.6% 65.4%
European Markets ............ 5,529 5,425 5,116 64.8% 67.4% 66.6%
Emerging Markets ............ 3,067 2,805 2,438 61.8% 64.2% 61.0%
Asia Pacific Markets .......... 4,147 3,847 3,272 62.8% 65.4% 64.3%
Segment total ................ 27,361 26,119 23,486 63.3% 65.2% 65.0%
Unallocated corporate items (1) .. (825) (476) (392)
Total ................... $26,536 $25,643 $23,094 61.4% 64.0% 63.9%
(1) The unallocated corporate items include the effects of amortization and impairments of acquisition-related
intangible assets, share-based compensation expense, and other asset impairments and restructurings. We do
not allocate these items to the gross margin for each segment because management does not include such
information in measuring the performance of the operating segments.
Fiscal 2011 Compared with Fiscal 2010
For fiscal 2011, as compared with fiscal 2010, the gross margin percentage across all geographic segments
declined primarily due to higher sales discounts, rebates, and unfavorable pricing, as well as due to a product mix
shift. These declines were partially offset by the impacts from increased shipment volume and lower overall
manufacturing costs across all geographic segments. The gross margin percentage for a particular segment may
fluctuate, and period-to-period changes in such percentages may or may not be indicative of a trend for that
segment. Our product and service gross margins may be impacted by economic downturns or uncertain economic
conditions as well as our movement into new market opportunities, and could decline if any of the factors that
impact our gross margins are adversely affected in future periods.
Fiscal 2010 Compared with Fiscal 2009
In fiscal 2010, the gross margin percentage in the United States and Canada segment declined compared with
fiscal 2009, primarily due to higher sales discounts and a lower service gross margin. The decline was partially
offset by the impacts from increased shipment volume and lower overall manufacturing costs. The gross margin
percentage in the European Markets segment increased during fiscal 2010 compared with fiscal 2009 due
primarily to lower overall manufacturing costs, increased shipment volume and favorable product mix. The
increase in this segment was partially offset by the impact of higher sales discounts. In fiscal 2010, the gross
margin percentage in the Emerging Markets segment increased compared with fiscal 2009 due primarily to lower
overall manufacturing costs, partially offset by the impact of higher sales discounts. The gross margin percentage
in the Asia Pacific Markets segment increased during fiscal 2010 compared with fiscal 2009, due primarily to
higher shipment volume and lower overall manufacturing costs. Gross margin in the Asia Pacific Markets
segment also benefited from favorable mix shifts in Japan. Partially offsetting this increase was the impact of
higher sales discounts. For each of our segments, the negative impact of sales discounts, rebates and product
pricing was driven by normal market factors and was within our expected range.
Factors That May Impact Net Sales and Gross Margin
Net product sales may continue to be affected by factors, including global economic downturns and related
market uncertainty, that have resulted in reduced or cautious spending in our global enterprise, service provider,
and commercial markets; changes in the geopolitical environment and global economic conditions; competition,
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