Cisco: Behind the Hype
aol.businessweek.com
John, this article is rather long winded, but it makes some interesting points that have been raised here from time to time as well. Some excerpts:
A new study by Robertson Stephens estimates that even if Cisco grew at 20% annually over the next 10 years, to $100 billion in sales, and sustained operating margins of 15%, an investor who bought the entire company at its current market value would earn a measly 3% return a year, based on projected cash flow.
For all the disquieting signs, an almost dreamlike view seems to prevail among the company's Wall Street supporters. In a 90-minute conference call between Wall Street analysts and Chambers on Nov. 5 to discuss first-quarter results, few analysts acknowledged that Cisco had posted a net loss of $268 million or that sales had plummeted 32%, to $4.4 billion. Nor did any of the analysts grill Chambers on the $290 million Cisco disclosed that it earned by selling "excess inventory" written off as worthless only seven months earlier.
Now, in the cold light of the tech downturn, some of those myths are being exploded. As academics and other experts reassess the tech era, they are raising serious questions about how well Cisco and other highfliers actually performed, even at the height of the boom. They say that a history of aggressive accounting, from massive write-downs of assets to the use of now-banned "pooling of interest" accounting for acquisitions, makes it hard to gauge how much many of these companies actually earned from ongoing operations.
Abraham J. Briloff, professor emeritus at Baruch College, estimates that in the two fiscal years ended in July, 2000, Cisco "suppressed a grand total of $18.2 billion in costs" by using this method of accounting (pooling in interest). "It inflates their subsequent results to the extent that they avoid having to charge off everything from inventory, patents, licenses, plant, equipment, and goodwill," says Briloff. |
