Ok. So here's why I think Cisco might go to $15 in the next month and a half. It might even go to NYCBoy's $12 guess. I think Cisco is about to take a Big Bath to clean the books up this quarter. I have no real evidence, but I keep thinking abou that $300-400 million severance charge they said they might have to take. Well, up that to $1 billion and then you are getting more realistic. Here's my wild ass guess at numbers (as soon as I get my eyes on the 10Q, I'll come up with more realistic figures):
* $300 million for severance (assuming huge package per employee let go; this is what Cisco said was a possibility in some article a few days back)
* $150 million to increase inventory reserve to cover the possibility of obsolescence, shrinkage etc due to sluggish sales of technology in their inventory that gets older by the day (no evidence on this yet, just my wildass guess)
* $500 million to increase bad debt reserve to cover for probability of many greenfield companies defaulting on Cisco's financing sales to them (again a WAG, but likely considering billions in revenues have come from companies on the verge of bankruptcy now)
* $250 million realized loss for the necessity of marking investments to market due to losses that aren't likely to recover within the next year (earnings have been propped up by investments in the past, so the converse seems likely now; again the figure is just another WAG for now)
So if you add my WAG figures up, you come up with $1.2 billion in potential charges they might take this quarter. Thus, the Big Bath. Now obviously, I haven't done my homework on the numbers yet, but I am willing to bet that if it's not $1.2 billion, it will be a sizeable amount. If I'm Larry Carter and John Chambers, I've got to be thinking, well we missed last quarter despite our best efforts. Sales aren't looking good this quarter either, so we might miss again. If the probability of us missing is this high, then we might as well take a shitload of charges all at once to shore up our balance sheet for the future. Then after this quarter is over, we'll be stronger than ever, which will clear the way ahead for a rebound.
So what might this do to the stock? I think if this scenario plays out, it could take the stock to $15, maybe even $12 like some have forecast. If Cisco does the Big Bath, then the longs on this thread will get the mother of all buying opportunities, because that will signal the bottom. I bet right after they take the big bath, they start buying back shares too, in order to send a signal to Wall Street that they think their share price has gone too low.
I don't know why I think this will happen, but when I started reasoning through it, I just felt it rang true. I guess we'll know early May whether this thing plays out or not. I don't have the balls to short, but I am going to free up cash to buy in May.
Disclaimer: For all you folks out their reading this and making decision based on it, here's one word of caution. Do your own homework. All my statements above are pure speculation like most of my rants on these threads. Any decisions you make should be based on your own due diligence rather than on any of my musings, which are subject to inaccuracies and the likelihood of being incorrect. In other words, my crystal ball has been broken for at least a year, so make your own guesses before deciding what to do with your money. |
