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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 73.99+0.2%Jan 12 3:59 PM EST
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To: Kenneth E. Phillipps who wrote (60402)7/23/2002 2:02:28 PM
From: RetiredNow  Read Replies (3) of 77400
 
As John Shannon will tell you, Cisco has huge amounts of cash, mostly from using employees as an equity financing vehicle through the issuance and exercising of stock options. That's where alot of that cash came from. I can't remember what John came up with when we talked about it last, but wasn't it something like 2/3 of the $21 billion in cash and investments that Cisco has actually came from equity financing through stock options issuance. John do you remember?

Shocking figure, eh? So anyway, I would agree. When a company has so much cash sitting on the books, not only are they not fulfilling their fiduciary duty to shareholders but there is an inherent agency problem. Their incentive is to spend the cash unwisely during boom times and to not take enough risk with it during downturns like now.

So you have to ask yourself: is my money really being put into too much risk with a company like Cisco that doesn't pay dividends, isn't growing earnings faster than share dilution, and makes it difficult for me to judge the impact of stock options compensation? Or is the company worth the risk of indefinitely putting off dividends in the interests of supposed growth that we haven't seen for a couple of years?

These are tough questions and tech companies don't really want to address these questions yet. I wonder if the pressure will build to make them address these question? I'm not sure it will happen given the strength of the tech lobby. It's too bad, though, because the obfuscation must stop, so companies and the markets can get their credibility back.
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