Last week I wrote a column about revenue recognition and the changes the SEC has adopted effective in 2001. Let's take a look at how Cisco recognizes the revenues from its financing activities. It's becoming an increasingly important part of Cisco's offerings to service providers. In financial terms, FLs are equivalent to the sale of a product. Revenue is generally recognized at the time the equipment is shipped.
Customers typically remit lease payments over a three-year period.
When Cisco enters into OLs, the transaction is similar to having Cisco rent the property to the customer. Cisco recognizes revenue over the term of the lease, which is typically two to three years. SLs are the riskiest type of financing transaction for Cisco. In these transactions, Cisco provides a financing option under which the customer purchases equipment, but pays for it by establishing a related debt with Cisco. In addition to Cisco equipment, the transaction can also include financing for costs associated with the buildout of the customer's network.