Cisco's F2Q10 accounts receivable soar $1.34 billion year over year!

Year over year (YOY), Cisco's accounts receivable soared by $1.344 billion, an increase that was a whopping $618 million more than Cisco's net sales increase, which was just a mere $726 million.

Source: Cisco Systems It's my personal opinion, that it's always a "Red Flag" when a company's accounts receivable increases year over year (YOY) at a higher dollar amount than the (YOY) increase in a company's net sales. So that's why when Cisco reported a F2Q10 accounts receivable (YOY) increase ($1.344 billion) that was a whopping $618 million more than Cisco's (YOY) net sales increase ($726 million), alarm bells began ringing in my mind. 7 Year Comparison of Cisco's 2nd Quarter Financial Numbers (In Millions)

Cisco 2nd Qtr for the Year 2010 2009 2008 2007 2006 2005 2004
Net Sales Increase or (Decrease) $726 (-$742) $1,392 $1,811 $566 $664 $685
Accounts Receivable Increase or (Decrease) $1,344 (-$1,272) $1,257 $371 $259 $238 $933

Days sales outstanding

in accounts receivable (DSO)
39 29 39 31 35 34 34

Source: United States Securities and Exchange Commission During Cisco's F2Q10 earnings conference call, Cisco CFO Frank Calderoni discussed Cisco's accounts receivable numbers:

"Moving on to accounts receivable, our accounts receivable balance was $4.2 billion at the end of Q2. At the end of Q2FY10 day-sales-outstanding or DSO was 39 days as compared to 32 days in Q1FY10 and 29 days in Q2FY09. The increase in DSO was driven by the shipment profiles during the quarter and the seasonality of our service billing."

Also during the same earnings call, Calderoni discussed Cisco's long lead time problem:

"In any rapidly shifting supply demand environment such as the one we are currently experiencing, shifts in lead time, inventory levels and manufacturing outputs will occur. For this quarter we did have a higher third month in terms of shipment than in previous second quarters, as evidenced by our results in AR and DSO. As we mentioned last quarter we have experienced longer lead times on several of our products, this was a result of increased demand driven by the improvement in our overall market. While we may continue to experience longer than normal lead times, our lead times improved throughout the quarter and we expect them to continue to improve throughout the next quarter."

At this point in time, I do believe Cisco's peculiar and very strange accounts receivable increase demonstrates that Cisco has most certainly experienced very severe and widespread component supply shortages. Related story: Cisco Quarterly Results Impress Wall St. but Not this Security Analyst


What's your take, do you agree with me that Cisco's AR increase reflects severe component supply shortages at Cisco?

BradReese.Com Cisco Refurbished - Enabling Affordable Cisco Networks Check with us, when you have failed Cisco equipment. We repair Cisco at the component level. Contact: Brad Reese

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