24916_04_2002 © 2002, Cisco Systems, Inc. All rights reserved. The View From Cisco Ammar Hanafi VP, Strategy & Business Development

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 It’s The End of The World As We Know It…

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 A Rapid Decrease in Venture Investing Amount Invested ($B) Number of Deals Source: VentureOne

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Source: Morgan Stanley Technology Research, March 2002 Notes:Technology Spending defined as IT spending share of total nominal business equipment spending Source: Morgan Stanley Technology Research, March 2002 Notes:Technology Spending defined as IT spending share of total nominal business equipment spending …..Driven By Technology Spending

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 The Service Provider Spending Decline Is Even Steeper Source: Goldman Sachs 33% 25% 22% 21% 18% 14% 15% 14% 15% 16% 20% 19% 29% 15% % Historical Average of Capex /Revenue (%)

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Source: Goldman Sachs …Especially By Segment (In Billions) $5.2 $3.8 $3.9 $1.4 $4.8 $1.5 $8.4 $2.6 $18.0 $13.3 $3.6 $1.4 $3.2 $1.4 $1.8 $1.3 $57.6 $79.9 $108.5 $98.3 $71.2 $73.8 $77.3 $81.9

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Investor Exits Dramatically Impacted: Liquidity Shifted to M&A in 2001 Source: VentureOne

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 …But This Doesn’t Tell the Whole Story Amount Paid ($B) Number of Transactions Source: VentureOne

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 It’s The End of The World As We Know It… But I Feel Fine !

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Source: Morgan Stanley Internet Research, December 2001 Internet Penetration Lags Other Communications Technologies Higher Penetration Lower Penetration Region Population (MM)TelephoneCablePC Mobile PhoneInternet Non-Japan Asia 2,882 6% 6% 20% 20% 1% 1% 2% 2% 1% 1% Europe Latin America North America Japan Rest of World 1, Weighted Average 5,94315%23%7%6%5%

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Source: Morgan Stanley Technology Research, March 2002 Notes:Technology Spending defined as IT spending share of total nominal business equipment spending Source: Morgan Stanley Technology Research, March 2002 Notes:Technology Spending defined as IT spending share of total nominal business equipment spending Technology Spending As a % of U.S. Business Capital Spending

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Technology Spending As a % of U.S. Business Capital Spending Source: Morgan Stanley Technology Research, March 2002 Technology Spending defined as IT spending share of total nominal business equipment spending Source: Morgan Stanley Technology Research, March 2002 Technology Spending defined as IT spending share of total nominal business equipment spending Jan 1980 PC Introduction: 28% Jan 1980 PC Introduction: 28% Jun 1995 Commercial Internet: 42% Jun 1995 Commercial Internet: 42% Dec 2000: 50%

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 CIOs Are Spending Money (9/02 Priorities) Source: Goldman Sachs IT Survey, 9/02. 1.Information Security 2.Cost Cutting 3.Application Integration 4.Disaster recovery/business continuance 5.New software application deployment/development 6.System and storage consolidation

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 VC Market Starting to Stabilize Source: Venture One

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 So Where Do We Go From Here?

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Three Sources Of Technology Spending Consumers Enterprises Service Providers Large Enterprise Leads The Market In Technology Adoption

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Mainframes Lack of standards Custom software Mainframes Lack of standards Custom software PCs Mini-computers Departmental buyers and solutions PCs Mini-computers Departmental buyers and solutions LANs Packages Standards LANs Packages Standards Internet Re-centralisation of buying Replenishment of infrastructure Internet Re-centralisation of buying Replenishment of infrastructure Mobile internet Supply chain CRM Extranets Convergent Tech Mobile internet Supply chain CRM Extranets Convergent Tech Enterprise Technology Spending Cycles Dominant Themes Dominant Themes Phase I Automating Basic Processes Phase I Automating Basic Processes Phase II IT Spend Shifts to End User and Departments Phase II IT Spend Shifts to End User and Departments Phase VI Extended Enterprise Phase VI Extended Enterprise Phase III Making IT Productive Phase III Making IT Productive Phase V Pent up Demand on Internet Phase V Pent up Demand on Internet Phase IV Replacement Acceleration Millennium Phase IV Replacement Acceleration Millennium Source: Lehman Brothers Research Technologies

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 The Impact of The Extended Enterprise: Network Security Circa 1995 Remote Site Leased Line PSTN Frame Relay X.25 Frame Relay X.25

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 The Impact of the Extended Enterprise: Network Security Circa 2001 PartnerSitePartnerSite Remote Site Internet Internet-Based Extranet (VPN) Internet-Based Intranet (VPN) PSTN Service Provider

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Computing/Data Networking Technologies Are The Foundation TDM/Circuit Infrastructure Packet-Based Infrastructure L2 Dx Services, I.e. ATM, Frame IP VPN Key and Dx PBX Systems IP Telephony Leased Line Services Metro Ethernet Services Narrowband Consumer Services Broadband—Ethernet, Wireless, Cable, xDSL, PON Enterprise Storage Arrays Networked Storage Local Servers Distributed Computing

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 The Cisco Opportunity: Enterprise Networking Leadership 80% of CIOs indicated that competitors were “very unlikely” (57%) or “somewhat unlikely” (23%) to displace their current vendor of choice Source: Morgan Stanley CIO Survey, March Com 1% Dell 3% Compaq 4% IBM 4% Nortel 8% 3Com 1% Dell 3% Compaq 4% IBM 4% Nortel 8% Cisco 77% Cisco 77% Other 3% Other 3%

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 The Cisco Opportunity: Service Provider Transition 67.4% 75.7% 84.5% 19.0% 18.5% 18.8% 17.2% 16.7% 15.9% 15.8% 54.9% 56.5% 45.2% 41.5% Data Services Account for 19% of SP Revenues But Are 85% of Revenue Growth Data Services Account for 19% of SP Revenues But Are 85% of Revenue Growth Source: UBS Warburg

© 2002, Cisco Systems, Inc. All rights reserved _04_2002 Network of the Future