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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 75.19-0.1%3:59 PM EST
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To: RetiredNow who wrote (60404)7/24/2002 8:47:56 PM
From: ahhaha  Read Replies (2) of 77400
 
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.

Whatever the absolute truth of your assertion, it does bring up a major problem for CSCO. How do they use the cash they have to make earnings grow?

The old model of buying sales and R&D within the confines of their existing business model and expertise simply won't work in the current environment. They either have to distribute the company or find new investments outside of their expertise.

The latter brings in your point about spending unwisely, but the condition under which they might do that is opposite to what you suggest. They end up spending cash unwisely during bust times.

The former implies CSCO must spin itself into five core business entities. This makes a lot of sense from a risk perspective. Reduce the total risk by providing the surviving entities with distributed cash to support ventures which severally reduces the risk thereby effectively employing the cash. It's as though the cash could be effectively used if it wasn't so large a quantity.
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