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Strategies & Market Trends : Guidance and Visibility

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Nov 14 9:30 AM EST

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To: 2MAR$ who started this subject	8/7/2001 11:01:03 PM
From: keithcray	Read Replies (1) of 208838

Cisco There was once a day when all that mattered about an earnings report was whether the company beat earnings and revenue estimates for the quarter just completed. Then we focussed on guidance for the quarter just started. But in Cisco's (CSCO) case, what's really matters is the growth rate for the next five years. Cisco CEO John Chambers likes to talk about tornado markets that will help Cisco grow revenues by 30-50% annually over the long term. But perhaps a better description is bubble markets, because it's getting increasingly difficult to believe that Cisco's markets will grow at anything like 30-50% in the post-bubble world. The service provider market that it was just breaking into held the promise of tornado-type growth prior to the telecom implosion. Now that market appears likely to shrink for another two years followed by a modest recovery. The enterprise market remains Cisco's bread and butter. The good news is that it did not suffer nearly as much as the service provider segment, and it is probably already in the process of stabilizing and returning to growth soon. The problem is that 30-50% growth in the enterprise business is almost laughable. The debate now is whether IT growth can hold in the double digits, which is probably too optimistic for the next 1-2 years. Cisco might be able to expand share somewhat, but it is already dominant in the router market, so there is no hope of gaining enough share to turn 10% market growth into 40% Cisco growth. Cisco is currently trading at 75 times FY02 (July) earnings. That's a fair price to pay for a company looking at 30-50% long-term revenue growth. That's outrageously expensive for a company looking at 15% top-line growth. Cisco might trade up or down on its Oct qtr guidance, but for long-term investors, listen to Chambers' discussion of the 30-50% revenue growth target. He is already losing credibility in keeping to that target; what remains to be seen is how the market will react if, or more accurately when, he finally backs away from it.

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