Cisco Looking for Suckers
infobeat.com
WASHINGTON, Aug 24, 2001 (United Press International via COMTEX) -- Cisco Systems Inc. announced a restructuring plan late Thursday, lost its head of telecom sales and reported that in the first three weeks of its fiscal first quarter it sees signs its business is stabilizing.
On Friday, in spite of negative durable goods numbers, the market rocketed up almost 200 points on the Dow, with Cisco itself up 8 percent, to $18.10.
Phineas T. Barnum would have loved this market; the suckers want to believe SOOO badly! -- or is he alive and well and working at Cisco?
Cisco's stock is, even after Friday's rise, down 77 percent from its high of $80 in early 2000. Even on the face of it, however, the stock's still not cheap; it's at the levels of late 1998, has a market capitalization of $140 billion, and is selling at around 70 times the highest earnings it has ever achieved.
A year ago, of course, it was a different story. In a September 2000 profile of Chief Executive Officer John Chambers, the magazine wrote, "Cisco has also created an odd workplace of shiny, happy people, triggering an observer to write "Why are these people always smiling?"
That one's easy, dummy. Because they've just cashed out $8 billion worth of stock options between them.
Things were still different in January 2001, as "Upside Today" magazine reported, "When the Cisco CEO said his Internet router firm would grow revenue between 50 and 60 percent in 2001, the entire industry sighed in relief."
Unfortunately, that relief didn't last long; Cisco's net sales for its most recent quarter to July 2001, were actually down 25 percent from the same period of the previous year.
Other things have changed too. Fortune in May 2000 ranked Cisco one of its 10 best companies in its ability to keep talent. Thursday, Kevin Kennedy, head of its service provider division, jumped ship. He may not be the last, given that Cisco's stock option bonanza machine stopped working about a year ago.
Maybe the compensation committee could give executives an equal number of put options as part of their salary -- that way they could really clean up in markets like these; one hates to see Cisco no longer providing its share of centi-millionaires.
But one thing hasn't changed at Cisco, and that's the accounting and the hard facts. In the year to July 2000, Cisco handed out $8 billion of shareholders' money to executives in stock option profits, none of which made it to reported earnings. They're still doing it; payroll tax on stock option exercises was the one Cisco metric significantly up from 2000 to 2001, from $51 million to $55 million.
Presumably the option value cost to shareholders was less; we won't know until Cisco files its annual 10-K in the next few weeks. But then Cisco's stated profits were less too, in fact, subtracting back all the items Cisco had thoughtfully chosen to leave out of its Net Income presentation, the company made a $1,014 million loss before the cost of stock option exercise.
Cisco's finances haven't changed much, either. "Investments", mostly of course in other dot com companies, have reduced only from $13.7 billion to $10.3 billion -- lots more write-downs to come there, no doubt all of them stowed unobtrusively "below the line" where they won't affect the "pro forma" earnings so beloved of analysts.
Inventories, even after a $2.1 billion write-off, managed to be up 50 percent from the previous year, from $1.2 billion to $1.8 billion, on sales down 25 percent. Remember in the immediately past quarter Cisco's inventory cycle is so slow, and the product cycle in tech so fast, that they must be nearing the stage where they can get a tax write-off by giving their older inventory to the Smithsonian!
Other assets quadrupled, to $3.29 billion; the bulk of the change appears to have come from deferred taxes, where Cisco has presumably written down even more for tax purposes than it has declared "under the line" on its financial statements. Of course, $2 billion or so of deferred taxes will be deferred to infinity and therefore worthless if Cisco doesn't make $6 billion to $7 billion in taxable profits over the next five years, something it currently shows no sign of doing.
And the first-quarter projection, that the market's so excited about Cisco making?
Why, that revenue would be flat to down 5 percent compared with the fourth quarter, which was already down 25 percent compared with the previous year. Worth a 200 point jump in the Dow, according to the market. Especially with Cisco's projections having proved so prescient in the past!
The real sign that the market is still "irrationally exuberant?" The other big tech gainer, up more than 5 percent on news that it might possibly (but not definitely) make a profit in 2002, was Lucent.
Copyright 2001 by United Press International. |
