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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 73.87-0.1%Jan 9 9:30 AM EST
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To: kvkkc1 who wrote (54303)8/6/2001 6:15:03 PM
From: RetiredNow  Read Replies (1) of 77400
 
Hold on there kvkkc1. They didn't overpay. They paid for companies whose stock was overvalued with Cisco's own stock which was equally, if not moreso overvalued. So for example, if a loaf of bread cost me $1 yesterday and then tomorrow the dollar has devalued so that now a loaf of bread costs me $10. I go ahead and purchase the loaf of bread, because I need to eat, otherwise I'll die. Have I overpaid? Of course not. It was still a good purchase because I needed the nutrition.

Now back to the real world. Cisco purchased Cerent for $7 billion. Already, they are approaching cumulative revenues for that companies products that equal the purchase price. In addition, they have received incremental sales on that product across their other customer by adding on functionality. Did they overpay? I'd say that if they bought Cerent for $7 billion worth of today's Cisco stock, yes they did. However, they bought Cerent with Cisco stock that was wildly overvalued at the time. So I vociferously disagree with the assertion that Cisco overpaid for that company.

You then may come back and say, well what about those other companies that they shut down or wrote off, like Pixstream. My rebuttal to that is take a look at the companies VCs fund. How many of those are successful? Not many. But the one or two out of 10 or 20 that are successful more than make up for the losers you also purchased. That is why Cisco has historically been successful. They have reaped huge returns on the companies they have purchased. The main architect of this success was and continues to be Mike Volpi. He is a proven star. To lose him would be a very big blow.
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