Kyros, you are right, what is happening to the market is taking currency away from Cisco, NT etc and manifesting that the problems at 3Com are not company specific but rather more to do with the economic environment.
Why I think 3Com the Chimpanzee is better adapted to weather the storm than the likes' of Cisco the 800 lb Gorilla.
3Com has more cash available per employee($206,000/employee)compared to Cisco ($90,000/employee). 3Com has been restructuring for the latter two years and is better suited to adapting to this kind of an environment. In the latter quarters 3Com has been well on its' way in down sizing while Cisco was in an acquisition mode.
Cisco is losing market share in its' core businesses to the likes of JNPR, FDRY etc for the last 4 quarters and it appears this bleeding has yet to cease. However, 3Com according to the latest conference call has either maintained or grown in every one of their core businesses.
Now couple this with some fundamentals, such as Book Value and you will see that at todays price 3Com is trading at a 60% fraction of its BV while Cisco is trading at 400% its Book Value.
I also think that 3Com's spinning off of the Palm and liquidation of most of their investments before the market decline was handled brilliantly. Just think about it, they took a failing business called Palm and made it into the most popular PDA, then they spun it off into one of the most successful spin-offs in history, giving share holders substantial returns on their investments. In the mean time they sold substantial amounts of their investments to enable them to weather any storm or doldrum that might prevail in the course of their restructuring.
The ensuing chaos will ensconce 3Com from any of the woes associated with most of the tech sector that is undercapitalized commensurate with their size. Remember feeding an army of 50,000 soldiers without any annexations of territory is cumbersome at best if not near to impossible. This is were Cisco will begin to manifest its' true mettle. I for one think Cisco will be compelled to down size and more than likely begin spinning off many of its' acquisitions in the near future. It is too brittle to be competitive in the looming environment.
In the Cold War "containment" was the policy used in detente to manage the USSR, because of its' shear size and reach. The theory posited that with containment all the West needed was time, before the Sovient Union would implode and lo and behold it did. The analogy to Cisco is similar, Cisco like the Soviet Union has a manifesto that is unrealistic and impossible to consummate. The Soviet Union was able to prolong its' demise through its' ideologues using Socratic misinformation. In the case of Cisco they have deftly used highly paid professional Spinsters to promulgate misinformation using loop wholes in the law. Nevertheless, time is Cisco's worse enemy, we will in the near future begin to see this company implode like its' counterpart the late USSR. |
