Mucho, I can hardly be considered a Cisco bull. I'm not invested in the company, and in the past, I've been quite vocal about a number of weaknesses in its product line from a technological standpoint. However, with that said, I'm not sure if any of the concerns you brought up, in and of themselves, paint a dire long-term picture for Cisco:
* margins
Cisco's profit margins have been decreasing for quite a while, due to both decreasing gross margins and increasing costs. While this definitely isn't a good thing, and while the assumption that this trend will continue in the future has to be factored into any long-term earnings projections, it's really nothing new.
* share count
Obviously, option packages and acquisitions are a part of the game for any major tech company that doesn't want to turn into another IBM or HP. According to the earnings report (http://www.cisco.com/warp/public/146/pressroom/2000/nov00/corp_110600.htm), the number of shares outstanding on a diluted basis increased by roughly 4% from the year-ago period. This doesn't seem like anything out of the ordinary.
* inventories
I think that there's two reasons for this. First, it was only a few months ago that Cisco was complaining about component shortages and the inability to meet demand. It's quite likely that the inventory buildup took place so as to make sure that such a situation doesn't take place again. The second possible reason stems from the fact that Cisco's seeing a continual increase in the % of its sales that come from the service provider market, which generally requires supliers to maintain greater inventory levels when compared to the enterprise market.
* DSOs
This, too, can be attributed to the increase in % of sales that go to carriers. To see what I mean, you have to look no further than the DSO levels possessed by the likes of Ciena, Sycamore, etc.
* other income (as a percent of pretax income)
Point taken. Based on my calculations, "interest and other income" rose from 8.7% to 12.1% of total pretax income. This is definitely an issue for some concern. However, I don't think that this, by itself, is a major warning signal, as other major tech companies with solid balance sheets have been through similar scenarios, all the while their core businesses happened to be booming.
* composition of CSCO's investment portfolio (percentage of bonds therein)
While bonds increased significantly as a % of Cisco's investment portfolio, this is primarily due to the fact that the value of the company's overall investment portfolio decreased due to the sale of equity-related holdings. The dollar value of the company's "restricted investments" increased by only 7.8%. Doesn't seem like a big deal to me.
I'm definitely not an expert at analyzing financial statements, so I might be overlooking a few things. Let me know if I am. Anyway, I hope this helps.
Eric
PS - Eric L., thanks. |
