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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.03

+0.8%

Nov 14 9:30 AM EST

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To: bambs who wrote (39466)	8/13/2000 2:15:39 PM
From: The Phoenix	Read Replies (1) of 77399

Bambs, I think all one has to do is: 1 - listen to the conference call 2 - realize the difference between income from operations versus income/cost from investments and acquistions. Payable up $2.5 billion ---- slow payment to supplier No. this is from pooling - acquisitions of Arrowpoint, Sightpath and Infogear. "Other Assets" grew by $4.1 billion a preferred item to hide real expenses. Paul Sagawa of Sanford Bernstein asked this question on the conference call. Most of this number is associated with the current portion of finances due from Cisco Captial. Larry Carter mentioned that this number will continue to grow. Investmetns grew by $5.5 billion another item who bears surprises. Just imagine a 10% haircut on Investments and 6 months profits evaporate. John addressed investments on the call. He said recent investments are a bit more speculative.. That is Cisco is purchasing/investing in companies earlier on in their development to reduce acquisition costs however this also means that returns from these investments will take more time. Furthermore most investments appear to be targeted at optics which I suspect will return very nicely. Haim's opinion isn't well researched. As to operating income $822 this year $853 last year. Operating and Gross margins are shrinking Y over Y from 23.6% to 17.1% this year. These are the consolidated numbers to which Haim is referring. We have discussed this before but you have not yet forwarded a case as to why we should use these numbers when assesing corporate growth. They are lumpy and do not provide an easy way to measure quarter on quarter changes. The consolidated costs to which Haim is referring include acquisition costs, payroll taxes, and goodwill. Cisco took a one time charge of $461M for the purchase of Alantec, Jetcell, Seagul, Qeyton, and Pentacom. In Q4 1999 In process R&D was only $81M. Amoritization of goodwill was up $150M. These are one time charges which skew the ability to compare Quarterly income. That's why Cisco reports pro-forma. In addition these numbers DO NOT include income from investments so they take into account all expenses of the corporation but not all of the income. Bambs. Please explain to me why investors should use these numbers instead of pro-forma... Haim is clearly very bearish on Cisco, however he hasn't really researched anything he has said - he didn't even listen to the call. He simply looked at the income statement and consolidated statement and made assumptions without asking questions or listening to the call. I know of no fund manager that would do such a thing. It would therefore seem strange to follow his line of thinking. My suggestion to you is to make your own decisions by listening to the CC. If you would you would hear things like: Cisco deferred $500M+ in revenue R&D expenses as a percentage of revenue decreased S&M expenses as a percentage of revenue decreased Income as a percentage of sales INCREASED Cash and cash equivalents DOUBLED from last year. Guidance was to continue to grow revenues at or above the upper end of market estimates (50%). OG

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