While Phil Weiss laid out a few numbers in his analysis, he has failed to explain why the numbers are this way.
1) The fact that Lucent's cash to debt ratio has been rising should not be of any surprise. It had to spend some of its cash in acquisitions. On the other hand, Cisco has been acquiring with pooling of interest. Take a look at the quality of the companies that Lucent has bought. Octel being the biggest, and this part of the business has been growing the fastest for Lucent. Too bad, Cisco didn't buy Octel; it is probably crying over this decision. Also, certain types of business that Lucent is in is different from Cisco's. Such as the Sprint PCS project, which Lucent spent over 2 Billion dollars to finance it. If Cisco wants to play with the big guys in the telecomm market, it might have to do it too. As long as the the companies that Lucent financies is in good shape, there is no need to worry about debt caused by such contracts. As of right now, Sprint PCS is doing pretty well. The next big finance project Lucent is going to do is with WindStar. Again, this is worth 2 or 3 billion dollars.
2) Profit margin was Phil Weiss' second concern. I see it other wise. So much of Lucent's business is already very competitive, I don't think they will get any more competitive. While Cisco is finally getting to the point to face formidable opponents such as Nortel and Lucent. Each with much larger customer base and experience in the telecomm market, Cisco should be the one that needs to worry about lower profit margin, not Lucent.
As for the overall picture, I like both company. It's a shame that I sold my CSCO two years ago for LU. I viewed Nortel and Lucent as killing threads to Cisco. But I was wrong; Cisco has been doing great. I am not going to make the same mistake again. I will keep my Lucent and look for an entrance point to acquire some CSCO. |
