Well, the only place for real information is the 10Q. Let me respond to some of your points.
<<1. Amount of the "loan-to-own" program (aka vendor financing) and to whom these loans where made. Gut tells me that 80% should be flushed.>>
That's too high. At least 50% of their sales are Enterprise where bad debt is very low. Only in the last year or two did they start the financing game to greenfield companies. I'd say the number is closer to 10-15%. My guess for bad debt was around $500M.
<<2. Inventory for two quarters. Since the market is flooded with CSCO gear at probably 10 cents on the dollar due to auctions combined with the slow down in cap ex, I assume that the next two quarters are down big. Does this stuff have shelf life in terms of technical upgrades. If so, that could help the battle with the cheaper re-sale equipment but also could hurt current inventories. From Multex.com inventory went up from a year ago from about 3/4 of a B to about 2.5 B. The biggest jump in the last two quarters-and that was before the breaks really hit. So what should I guess? At least 1 B write down but this of course does not take into account any returned items and the 2.5 B number is as of 1/01 so that is old to. At least 2 B write down.>>
Too high again. Inventory growth should have been about 60%, which is right in line with Revenue growth. So it should have gone from $.75B to $1.2B. But in the last quarter alone, they've stopped purchases from the semis and their suppliers, so they've probably whittled it down quite a bit. So I'd say maybe $200-400M worth of obscelence at most. But they'll ratchet up their reserves if they can, so they'll have nuts for future bad times, so maybe more like $500M.
<<3. VC fund. I remember some sort of 1 Billion commitment earlier this year (need help-big guess). Was that cash spend or can it be called? Do they list other companies that they have invested in? If you know where to look, I will do the research and report back.>>
It was with Softbank and that isn't money down the drain, that's an investment that may take years before we know whether it was worth while or not. So no real guesstimate is possible here except that we know their won't be any write-offs from this for at least 2-3 years. If was a minority investment it will show up in their B/S. If it was less than that then it might show up in LT Investments. The rules are really not that simple, but that's a decent simplification for cursory DD.
<<4. Real estate. They were building like crazy and have forward commitments of a few million sf. Could be an addition big cost. 1/2 B>>
This won't be a writedown, though. Where you'll see it is in their net margins and depreciation. It will affect their bottom line, but they won't write down the new buildings.
<<5. Severance package. Unbelievable. This is to the same people who in the tight labor market pounded on CSCO for high pay, options, free lunch, great health care benefits, etc. And now pay them more... 1/2 B>>
The company came out with an estimate of $300-400M, so we know what this charge will be. I doubt it would be higher than management's press release, because this is a figure they have complete control over.
<<6. From Multex.com I get the following from last qrt. About 4 B in receivables. That is up from 1.7 B a year ago. Why? Yes some sales growth but I could envision this being chopped in half via a write down. That is 2 B alone.>>
If A/R were to have risen in step with sales growth then, A/R should have been about $2.7B. So there's a $1.3B discrepancy. Then we have to give some credit for Cisco moving into the Service Provider market, which is know to have longer sales and collection cycles than the Enterprise market, so lop off $300 million from that discrepancy, leaving us $1B. Then of that, we can guess at bad debt if we we're being pessimistic of 30% of that, so around $300M and then another $200M from the rest of their receivables, just to be conservative, for a total of $500M.
<<The above quick research guess says about 4 B on the low end to 7 B on the very high end. But, I still do not know about the loan program and the VC investments? Appreciate comments and help.>>
You also left out marking investments down to market. I'm sure they have tons of investments that have been permanently impaired, but don't count as holding investments. So these will have to be written down. I'd guess another $300-400M.
From my revised estimates, I come up with a total of around $1.6-1.8B. These are the most likely amount ranges. I hope they take the big bath this quarter, but they may also do it over two quarters. Let's see what happens. After they announce this stuff and give us visibility into their financials, I think all the bad news will be out and it will be safe to buy into the stock. Until then, I think the stock has the potential to go back down to $12-13 bucks. |
