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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.96

+0.3%

3:59 PM EST

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To: Wyätt Gwyön who wrote (46205)	1/6/2001 12:22:01 PM
From: The Phoenix	Read Replies (5) of 77400

MM, Yep, CSCO had to plow cash back into R&D and over the past year CSCO's percentage growth in R&D has outpaced top line.... probably also SG&A (I'm guessing - I don't have the numbers handy). This is a result of CSCO's effort to build out their optical portfolio and is short term. In fact last quarter R&D growth and top line are about in line... and I expect going forward top line will again out pace R&D generating more and more bottom line growth. Further to this same discussion CSCO has taken on the role of protecting their customers from the component shortages by buying up and inventorying raw materials. This has also been a drain in earnings and again this is short term (as I just pointed out to John). TO assume that these two variable continue in this manner is .... well.... flawed. If you were watching this industry a couple of years back everyone talked about how CSCO had no presence with carriers... they talked about no optical strategy. CSCO has spent gobs of cash this year and late last to build the infrastructure and product lines to penetrate the carrier space and build an optical product line. It was an expensive task but CSCO has succeeded. They have optical revenues exceeding (if I remember correctly) $2B.. (that may have been a run rate that Chambers talked about on the last call).. I do remember him saying that the Cerent box was one of their 19 or so $1B+ product lines. They have also come from next to zero market share in the carrier market to something like 10% (LU still has the largest at 15%, followed by NT at 13%). So it would seem these "investments" have paid off and that now CSCO is executing. Does CSCO need to continue to spend at that pace???? The cost of getting into new markets in the communications industry is an expensive on - there are HUGE barriers to entry. Maintaining and growing share are expensive too - but the infrastructure, smart people, and products are in place. R&D costs will go down as a percentage of sales, SG&A costs will go down as a percentage of sales, inventory amassed to solve short term supply will go away - perhaps even this quarter. To not understand what has been going on this year and how it has affected the numbers is a mistake. Good luck MM, OG

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