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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 73.99

+3.1%

Nov 12 3:59 PM EST

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To: RetiredNow who wrote (53207)	5/20/2001 12:56:27 PM
From: Stock Farmer	Read Replies (1) of 77398

Mindmeld - Good data. But it merely says there is a market out there, and does not quantify the potential benefit CSCO could reap or relate that to the present price of a slice. Which is what is required. Let us take this to ground. 16 Million wireless internet subscribers in 2010. How much does this help. We assume purchasing CSCO now for $20 and selling it in 2010 for at least our target profit. In 2010 we can assume bubbles evaporate, Cisco is very big, and CSCO will have a PE of approximately 20. The silly breakeven hurdle competes against a $20 bill in a safe deposit box and that is EPS in 2010 of $1.00 in 2010 dollars. The T-bill breakeven hurdle is EPS in 2010 of $1.70 (= 1.00 @ 6%) An equity breakeven hurdle of 15% is EPS in 2010 of $3.50 Follow the money. Let's assume these subscribers pay $50/month in 2010 dollars, that's $50 x 16 M x 12 = 9.6 B$/year. Or you can use the article's revenue, which was a bit lower. Let's use this higher number. How much flows to Cisco? Let's be generous and disintermediate the service provider and the entire wireless infrastructure and assume the consumers make their monthly checks payable directly to Cisco. 9.6 B$/year in revenue at 15% net margin gives 1.44 B$ earnings contribution in 2010 dollars. 7.5 Billion shares, dilluting at 5% per year, scaling back by 80% gives 10.5 Billion shares in 2010 for EPS contribution of $0.14/share. Now, let's be reasonable here. 100% of consumer revenue is not going to go to Cisco. Some of it is going to go to the service provider. I was just being silly. Maybe Cisco can take 80% of the 20% that will go to the internet infrastructure part, or 16% of consumer revenues. Which means this whole wireless internet might contribute $0.03/share to Cisco's bottom line by 2010. Add that to the $0.12 they are generating with their current business and you only have a) $0.85 to go to breakeven against a $20 in a mattress for 10 years b) $1.55 to go to breakeven against a 10 year T-bill c) $3.35 to go to break even against a "good buy". At this rate you need maybe 15-50 more markets as big as wireless internet in order to justify CSCO at a $20 price. See what I mean mindmeld? The market is wonderful. But it doesn't make the promise gleam that much brighter. John.

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