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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.70

+2.2%

3:59 PM EST

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To: polarisnh who wrote (5242)	4/8/1997 8:58:00 PM
From: Maverick	of 77400

CSCO's prospect From briefing.com Cisco Systems: Experiencing Growing Pains Daily commentary updated for April 08, 1997 Company Brief Cisco Systems (CSCO 54 7/16) is the largest supplier of high-end internetworking products for linking LAN and WAN of computer systems. Though you would never know it by looking at the performance of the stock, CSCO's earnings over the past two quarters have jumped by 68% and 53%, respectively. Third quarter earnings for FY97 are projected to show a year over year gain of a mere 43%. Revenue gains have also been impressive, though traders are nervous over the slowdown in sequential revenue growth. 11% last quarter, sequential sales growth is projected to slow to the mid-single digit range over the next couple of quarters. International sales accounted for 48% of total revenues in FY96. As the international markets play catch up with the U.S., this percentage is expected to edge steadily higher over the next couple of years. What Went Wrong Given the 39% drop in the stock's price over the past few months, one would think that a fundamental and long-lasting change had occurred in the outlook for Cisco's business. Such was not case - not even remotely. What happened was that the same momentum investors that bid Cisco sharply higher with little regard to its fundamentals, recently unloaded the stock with the same lack of regard for fundamentals. A classic example of how the herd mentality can dramatically impact the price of a stock - for better or for worse. But group think only explains the magnitude of the decline not its underlying cause. A number of temporary factors converged to trigger the stampede out of Cisco Systems. They were in no particular order: Increased competition. Slowing growth in the European and Asian markets. Difficult comparison periods. Product transitions. Stronger dollar. Threat of new technologies. Higher interest rates. Alone, none of these factors would have sparked the industry wide bear market in which Cisco played a large role. But combined, they created an earnings-related anxiety attack. Investor fears were fuelled by cautionary comments by several networking CEOs, including Cisco's own, John Chambers.

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