re: So when the market grows, of course, most of that growth will go to Cisco
Yes, this is clear, just by looking at the balance sheets and market shares. And that is why, when I do take a LT position, I'll only buy CSCO in this sector.
But that is not a good argument for buying CSCO today. Comparing them to their peers is useful for deciding which stock to buy, but tells you nothing about when to buy, or at what price.
Those questions are best answered by asking the question: How much longer is this sector going to have deteriorating fundamentals? Deciding a "fair value" for CSCO stock depends on the answer to that question.
If the problem was just stuffed channels and overinventory, we could be near a bottom now. If the problem were just overcapacity, then we could be near a bottom (next one or two quarters). The real problem, however, is debt. All of CSCO's customers have too much debt, and lots of them have inadequate cash flows to service that debt, much less buy any more of what CSCO makes. I read somewhere recently that telcos (in N. America and Europe) had piled up 700B in debts in the 1990s. An unknown amount of that is going to be written off. 100B? 200B? More? How many of the dotcoms and CLECs are going to be owned by the unhappy banks that lent money to them? Half of them? 90%?? The point is that this process is just beginning. In other industries, when this kind of situation happens, it usually takes several years till enough capacity has been taken out, and enough companies have been merged or liquidated, and capital spending resumes. And, even then, capital spending doesn't resume at the same rate as before. I'd say we are in about the second or third inning of the game. |
