Posted at 10:15 p.m. PST Tuesday, February 2, 1999
Cisco system produces a
'virtual close'
BY JONATHAN RABINOVITZ
Mercury News Staff Writer
There were a few days left before Larry R. Carter was to present
Cisco Systems Inc.'s quarterly earnings report to about 800 financial
analysts, but the chief financial officer was not scurrying to crunch the
final numbers.
Last Friday night, Carter's only rush was to leave the office in time for
a 6:30 dinner party.
''No way would it have been like this a few years ago,'' said Carter,
as he logged off his computer. ''And I wouldn't have been crazy just
the last three days, it would have been the last two weeks.''
Carter's improved social life is one of the smaller changes that
networking technology has made to Cisco's financial management, as
the world's largest maker of computer networking equipment has
moved toward what its executives call a ''virtual close.'' The San
Jose-based company has pioneered the use of its own networking
equipment to reduce the time and effort behind producing its quarterly
reports.
Although Wall Street has never paid much attention to how quickly
such numbers can be released, Cisco officials insist that a quick close
gives them a competitive advantage. As part of the process, the
company learns earlier about potential problems and potential
windfalls, while also freeing up financial managers for projects besides
closing the books.
Cisco reported after the stock markets closed Tuesday that its profits
of $606 million increased by 33 percent from the same quarter last
year, not counting charges. Its earnings per diluted share of 36 cents
came in a penny higher than analysts had projected, according to First
Call Corp., which surveys analysts' expectations.
The quarter ended Saturday, Jan. 23, and within three business days
-- by the end of last Wednesday -- the numbers were ready, Carter
said, noting that was seven days faster than it took a few years ago.
The company reviewed the figures Thursday and waited until Tuesday
to release them, to gain more market attention than executives believe
they would get on a Friday or Monday.
By 2000, the goal is to have the earnings results the day the quarter
ends, Carter said.
''Cisco is on the forefront of using the net to close their books,'' said
Jeff Henley, chief financial officer at Oracle Corp, which supplies
Cisco with its database software. ''It's a trend that many in business
are talking about, but I rarely run into people actually doing it.''
To be sure, some people dismiss the closing time as largely irrelevant.
Cisco's competitor, Lucent Technologies, ended its last quarter Dec.
31 and released the numbers 14 working days later. ''I don't know if
it makes any difference at all,'' said Gary Bonham, a Lucent
spokesman. ''Does it make them any better in the marketplace?''
Brett Trueman, an accounting professor at the Walter A. Haas School
of Business at the University of California at Berkeley, said corporate
electronic closes would not directly impact the financial markets.
''The market only cares that you announce when you say you'll
announce,'' he said.
Still, several executives from Cisco and other companies said a
quicker close can cut down on uncertainty and rumors in the market
as analysts wait for the figures to be released. It also reduces the
period during which information can be leaked or insiders can profit
from illegal trading, Trueman noted.
''In terms of transactions the quicker you can close and get it out to
the market, the better it is for all involved,'' said John Chambers,
Cisco's chief executive. He added, however, that a more important
aspect of the quick closing is that it means the company is on top of
the financial information about its activities.
''If a company doesn't know what's going on until three weeks after
closing, that's when you can get surprised,'' he said.
At Cisco, orders and sales closings are entered directly into the
network every day so that top executives get a daily report on
revenues, discounts and product margins. About 73 percent of all
Cisco sales transactions are done by electronic commerce so this
makes it easier to have such information available.
The virtual closing is part of Cisco's larger effort to get as much of its
business into the network and away from paper.
On Friday night, as he finished the day, Carter looked for purchase
requisitions that needed approval, finding online a request for a
$855,000 construction project. After seeing who had signed off on it,
Carter approved the deal.
Next, for the benefit of a visitor, he demonstrated how he could
''drill'' into the booking information. He went from the global
numbers, to the national numbers, then to the southern region, then to
the Gulf Coast and finally to Austin, where he had a list of all the
salespeople. He pointed out one who had a large ''debooking.''
''On a given day, I might call the guy and ask what's going on,'' he
said.
Similarly, all travel arrangements and workforce and benefit statistics
are available through the company's networks.
''Cisco's not just a big seller of the technology but is also one of the
most efficient users,'' said Bill Rabin, an analyst who covers
networking stocks at JP Morgan. ''It's important because it shows
that they drink their own Kool-Aid.''
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