William please, your thoughts on the Barron's bash on Cisco?
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NEW YORK, May 7 (Reuters) - Cisco Systems Inc. <CSCO.O>, the San Jose, Calif. company that makes routers and switches and other products that power the Internet, is a $470 billion market giant among all companies, but the May 8 edition of Barron's asks whether it should be.
The company enjoys revenue growth of more than 50 percent a year, and at 67 a share, Cisco sells for about 190 times its 35 cent-a-share earnings, the weekly newspaper said.
Cisco's growth has been powered by acquisitions: one in 1993, three in 1994, seven in 1996, six in 1997, 18 in 1999 and, so far, 10 this year. The most recent was Cisco's announcement Friday it would buy ArrowPoint Communications Inc.<ARPT.O> for about $6 billion in stock, adding to its software line for routing Web-page traffic.
Cisco has increased its budget for acquisitions each year as its revenues and stock price have soared, and therein lies the problem, the newspaper argues.
If any one of those facets trip, the other two are likely to follow, Barron's says.
As Cisco offers higher and higher bids for its targets, it drives up the price for all telecommunications-equipment company's Barron's said. Those in charge of Cisco's shopping run an ever increasing and expensive risk that the acquisitions must be the right company with the right people and develop the right products for a market that may not come to fruition for years, Barron's said.
Barron's also questions the method by which Cisco accounts for acquisitions, which until recently had been done through simple purchase accounting. However, it has accounted for its most recent sky-high priced acquisitions through the pooling-of-interest methods. Barron's said if these companies had been acquired under the old method, they would have wiped out Cisco's earnings.
Barron's says pooling of interest distorts earnings by failing to reduce them with amortization and goodwill. The Financial Accounting Standards Board has proposed eliminating pooling-of-interest accounting and last week Congress began hearings on the ban. Cisco is one of the high-tech companies opposing the ban, the newspaper said.
15:43 05-07-00 |
