What's amazing to me, is how much inertia there is, in the attitudes of management (at Cisco and many other companies). Clearly, investors are steadily becoming less and less tolerant of Creative Accounting. And, in the tech world, not counting employee stock options as an expense, is probably THE biggest example of Creative Accounting. Yet managements just don't GET IT. They are still making excuses, lobbying hard in Washington against reform, and hoping investors will continue to SuspendDisbelief.
Here's how I think it plays out:
1. The continued Creative Accounting puts a hard ceiling on the stock price. Even once the recession is over, and IT budgets come back, investors won't allow the stock price to sustain any move over 20. It becomes routine for analyst reports, and the business press, to state EPS (and value the stock), with options costs included.
2. As the stock goes nowhere, employees get less and less willing to accept options as a major form of their compensation. This, IMO, is already happening. But the response of management, so far, has been to give even more options, at ever-lower strike prices. This is, clearly, not a longterm solution. Management, today, is beating a dead horse.
3. Cisco's cash, and dominant market position, allows them to avoid making hard decisions, and put off the DayOfReconning, for many years. The company, and the employees, do well, once this recession is over. The stock languishes, for many years.
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Anyway, I've put in an order to sell all my CSCO at 15 (above my average cost basis). IMO, this will be a trading stock for years to come. |
