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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 77.66

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2:38 PM EST

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To: Stock Farmer who wrote (65482)	5/14/2004 1:21:51 PM
From: rkral	Read Replies (2) of 77400

John, for this most recent Cisco quarter, with respect to the deferred revenue topic, I think I'm being realistic. During three decades of working as a (product and systems) design engineer and engineering manager for communications companies, I've seen and participated in many end-of-quarter happenings. Frequently they made me shake my head. Sometimes they made me swear. And occasionally I argued with executive officers about what we were doing. Not surprisingly, they won .. every time. :-) The most frequent occurrence was engineering "helping" production technicians test "new products". The product wasn't always new .. but it was almost always at end of quarter. Next most common was shipping complex systems without a sub-assembly because the sub-assembly was in short supply. All the systems were tested with one of the subs .. and then many shipped without. No problem! The systems were so complex, only our installation technicians powered them up and brought them online. Solution: Just let the tech take the part with him on the installation trip. (I don't recall if missing sub showed up on shipping document as "back-ordered".) And there were a few occasions our company had complete product ready .. but the customer wanted shipment delayed to avoid a hit to their accounts payable. But we wanted to recognize the revenue and report the income. Voila! Just ship it to a warehouse. But did any of those activities cause a shift from 20% NPM to 100% NPM .. as you presented for a quarterly shift of some Cisco deferred revenue? Highly unlikely IMO, highly unlikely. AFAIK the material and labor costs were both reported along with the revenue. Do I believe companies manage reported earnings? You bet! I remember plotting GE's annual EPS some time ago .. and it was the prettiest straight line you can imagine. That doesn't happen by accident. And it doesn't happen with good planning and execution either. It's helped along by managing the earnings IMO. But do I believe Cisco managed earnings for 3Q04 by manipulating deferred revenue? Suppose they might have, but the evidence is very weak .. because of the previously mentioned QoQ increase in deferred revenue. So I believe, if financial engineering occurred, it occurred elsewhere. I'm sure we can agree to disagree. :-) Ron

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