The purchased R&D is not, in an accounting sense, an asset. Is it in a business sense? Cisco thinks so, 'cause that's a part of what it paid so much for, that and - more important - the brains in the company that are doing the R&D. That R&D will give rise, hopefully, to new or improved products, and hence new revenues and profits...later.
However, I've done a bit more work (and thinking) and here's my latest thoughts:
A few more minutes' work shows us CSCO is continuing apace in its acquisitions.
If what you look at is CSCO's core business, what it actually built and sold and what it made on that, biz looks good. The key, however, is to look at Cisco on an ongoing basis you remove the investment gains because who knows if they'll continue? You want to see what the lookout will be moving forward regardless of the rather undependable <g> stock market's effects. You also want to remove one time expenses...but the 'one time' charges for goodwill amortization and in-process R&D purchases are only one time if CSCO stops acquiring expensive, non-accretive (short term), assets (companies)...which a quick look tells us it's not. Yet, anyway.
Just in the past two months it's announced three more acquisitions, each of which will hit EPS for purchased in-process R&D for a total of about .09 in Q1 (this Q, that hit was only .06). Until we can see CSCO is slowing its acquisitions, or that it's costing less, this expense should be viewed as on-going, and hence a caution, IMO.
So biz is great, but it's costing in the short term to buy all these low-or-no revenue companies to build for the future.
Nothing wrong with that long term, of course, if you have faith that Cisco will be able to reap the rewards of these expensive acquisitions, but it needs to be considered in the short term.
WUWT |
