MSFT was a company that could do no wrong. CSCO holds that bag, for now.
The two comparisons from recent history I find most interesting for CSCO are MSFT and DELL. As you say, MSFT once held the mantle of "Company that could do no wrong"; now it is CSCO. DELL once held the mantle of "Company that could grow revenues by 50 percent or more per year indefinitely"; CSCO's growth rate seems (has seemed) unsustainable for a company its size and yet it keeps getting sustained.
The trouble with viewing a company as the "next" this or "next" that is that history never really repeats itself; it evolves, in part because those strategizing in the present about the future are painfully aware of the past. Ultimately, DELL met the almost inevitable fate mandated by the law of large numbers and stopped growing revenues at 50 percent a year. Now it has sacrificed margins to even grow revenues in the 30 percent plus per year range. MSFT ran into its own problems, as we all know (trying not to provoke Smithee, I won't comment on those problems here).
That having been said, I think the most likely long term outcome for CSCO is that its PE will come down, in fits and starts, but its stock price will go up, also in fits and starts. This is a company which has executed, if not flawlessly, at least admirably in one of the most dynamic marketplaces in history. Its market power is formidable, yet it displays some respect for the antitrust laws and for the way that government works. It is therefore unlikely to meet MSFT's fate.
It is also a company always on the prowl to dramatically expand its core competencies to exploit whatever new markets are poised for dramatic growth. DELL, as a retail box-assembler initially, was limited in how it could do that. Sure, DELL could break into and conquer the business market. Sure, DELL could expand into low and midrange servers a little bit. Sure, DELL could offer ancillary services and products. But ultimately, the room for expansion was into areas in which margins are not high enough and long term growth not robust enough to feed the beast the type of meals it had become accustomed to.
CSCO, on the other hand, has been breaking into the sorts of businesses that can provide it the high octane fuel necessary to continue its revenue parabola a long ways into the future. In its core business it has a large share, but in a lot of other businesses it really has not even gotten rolling yet. It carefully selects those businesses based upon revenue opportunities in the medium to long term. When it starts to get established in a business, much like the former MSFT it strikes fear into would-be competitors, which also makes the success a bit easier to sustain. Its ability to execute, its culture, its management, all of those things are not just admired, they are revered and worshipped. Chambers will get a much larger advance for his book when he retires than Welch got for his recently.
What it comes down to in the end is that it will be a long time before people are willing and eager to bet against this company. A long time.
We should start a poll. On what day will CSCO's market cap first exceed $1 trillion???
My guess is July 14, 2003. |
