You have some good points, especially about the misforecasting of the OC-192 market.
Having debt however is not necessarily a bad thing. Most major corporations manages a ratio of fixed to floating rate debt in a mix that provides the optimal flow for growth, better than they could achieve without debt.
The Company's debt ratio at March 31, 2000 was 24.6%. On September 30, 1999, the Company's debt ratio was 33.6%. The decrease was directly related to the increase in shareowner's equity and the decrease in total debt (Debt ratio is total debt to total capital, i.e. debt plus equity)
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One might say that not using any debt is to throw away opportunity, and is a mismanagement.
Employee retention is a problem with all of the large technology companies now, because the potential for wealth in a startup stock option plan is very seductive.
There has never been a time like now for engineers. Salaries are huge and it is strictly an employees job market. The good news is that the startups are being bought up, and the talent is sometimes put back into the same harness.
I see that you work for Cisco, surely you are seeing the same phenomenon.
Cisco is a classic example of an accretive company in the way that they create increased earnings (no news to you I'm sure) by buying companies.
These deals involve exchanging high P/E stock for
lower P/E stock. In essence the company is acquiring more earnings than it is required to issue new stock, thus elevating forecasted EPS.
The problem with these accretive deals is that the creation of earnings per share through acquisition may be
masking a problem with organic growth with the existing company prior to the acquisitions.
Wall Street usually realizes too late about deteriorating fundamentals. So, while a company has a high P/E, it can use this acquisition currency to mask deterioration.
Examples where this happened are Snapple and Oxford Health. |
