Concluding Little From Cisco's Call
By Cody Willard
02/05/2003 15:50
So what did we learn from Cisco CSCO ? Frankly, not much, although what we did learn wasn't positive.
In a remarkably ambiguous call, "politician" CEO John Chambers, as James Cramer calls him, offered hedge after hedge Tuesday night, saying that business was neither good nor bad. Demand in IT is neither improving nor declining. A Senate minority leader couldn't have handled last night's fireside chat -- I mean, earnings call -- any better.
A Rundown
Like a Seinfeld episode, it was a call about nothing. Nevertheless, here are some highlights:
Cisco's customers don't have much visibility. Note, please, that Cisco itself doesn't lack eyesight, but rather its customers do. You wouldn't want a CEO to admit he had no visibility, would you?
As Chambers began to comment about forward guidance, he used the word "however" no fewer than three times in three sentences. I lost count of it during the conference, but I'm sure it was repeated scores of times, as darn near every other sentence was a hedge of the one before.
Book-to-bill, which measures how many new orders the company received vs. how many it delivered, was "less than one." Not "slightly less than one" or 0.9 or anything with some meaning to it, but simply the inscrutable "less than one." When analysts tried to delve more deeply into the ratio during the question-and-answer session, Chambers stuck adamantly to the "less than one" refrain. Mind you, I don't find book-to-bill very helpful in determining anything about a company's forward prospects. Nevertheless, it's information that I like to have, and I was disappointed that Chambers wouldn't be more specific.
Just like last time, Chambers stressed Cisco's "focus" repeatedly. He was very optimistic about "those things that Cisco can control," but less optimistic about things it can't control. Does that mean anything to anyone?
Leading the Pack
Here's what we do know: Cisco is kicking its competitors' tails. As I wrote some time ago, Cisco had a great advantage by being able to focus on strategic positioning and market-share wins, while its competitors were busy scrambling just to stay in business. Cisco is now executing on those decisions and is, quite simply, knocking the cover off the ball, relative to almost anyone else. It's still very much the same company it was three years ago, unlike Nortel NT and Lucent LU , which are mere skeletons of their former selves.
Its voice-over-IP platforms offer Cisco a great area of potential growth and, just as importantly, could create paradigm shifts in the way phone calls work. (I know, I know, '90s' buzzword!) No other vendor is positioned as well. Sure, Nortel and Lucent are both actively positioning and selling similar platforms, but they'll probably achieve the same degree of success as they did in competing against Cisco in routing. (Translation: They'll fail.)
All in all, though, I think Cisco, the stock, is headed a little higher from here, as the recent selloff seemed to price in bad news. If I were a betting man (and I am), I see the stock heading a point or two higher in the short term before coming back down intermediate term and heading quite a bit higher from there, long term.
That said, I'd be leery of drawing too many macro conclusions from Cisco's call. IT spending is likely to be flat to down from the last quarter of 2002. Big deal. Wake me when there's some news. |
