I've been watching the debate here for a few weeks. A couple of comments:
1. Telecomguy is underestimating Cisco's strength and staying power in the enterprise market. Even at $10B in annual enterprise sales, that is less than 5% of world wide enterprise IT spending. With better than 50% of its traditional markets, it continues to add share, while identifying new enterprise opportunities to attack. IBM's complete capitulation in the SNA/IP market paves the way for Cisco to replace every front-end processor on earth with its own router-based solutions. This is worth $Billions a year. Cisco's position with Fortune1000 IT shops is akin to IBM's position in the 70's. With Cisco's proprietary hooks in IOS (e.g. EIGRP), and matchless sales/support, other companies cannot gain a foothold. It will take a major discontinuity (a la the PC reveolution) AND near-sighted bumbling for Cisco to lose its position. As Damon Runyon once said "The race may not go to the swift, nor the fight to the strong, but that's the way to bet"
2. Of course telecomguy has some very valid points about Cisco's penetration into the carrier market that should be taken very seriously. It is no coincidence that the company that two years ago was adament the customers wanted "end-to-end solutions from a single vendor" has changed its tune to the "internet ecosystem". Cisco does not have the software and integration skills to be the prime contractor for carrier network projects. Sprint and Telia are fairly large indictments that the "internet ecosystem" is not an effective way to deliver an integated carrier-class telecom solution. After spending nearly $10B on optical companies, Cisco will have to show considerably more progress by next years analyst meeting. The bad news: Lucent and Nortel will be very difficult to beat, even for Cisco; The good news: Cisco doesn't have to beat Lucent and Nortel, it just has to beat Alcatel, Siemens, Ericsson, NEC and Fujitsu.
3. It really is difficult to justify CSCO AND NT valuations on a traditional basis. Remember, in the entire recorded history of public companies, only one has ever been able to chalk up sales growth of 20% or better for as many as 15 consecutive years - IBM circa 60's and 70's. Even Mr. Softy has failed to meet that bar. If you do the math, Cisco's price is discounting annual EPS growth of ~27% for the next 10 years, NT at ~24%.
4. Momentum is a different story. We re-upped our Cisco overweight pre X-mas and expect the run to continue for a while. We sold our NT overweight way to early and left 25% on the table, but I won't pull the trigger at these prices. The key to momentum is to figure out when to sell and when to buy more. In the last 3-4 years, the answer on almost any stock in the tech sector has been buy more and alot of newbie's to the market think themselves geniuses for having bought Cisco, QCOM, JDSU, JNPR, etc.. Maybe so, maybe its luck, but no matter how good the company and how strong the momentum, the odds are that these stocks will revalue at some point. But then again, maybe I'm just an old timer. |
