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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Ibexx who wrote (27290)	8/9/1999 8:57:00 PM
From: Ibexx	Read Replies (3) \| Respond to of 77400

Cisco investors, Below is a glowing research article on CSCO issued by Prudential Securities today: _________ AUGUST 9, 1999 CSCO: JULY QUARTER CHARACTERIZED BY STRENGTH ACROSS GEOGRAPHIES Subject: Cisco Systems (CSCO-62 1/4) OPINION Current: STRONG BUY/SBI/SELECT Analyst: Luke T. Szymczak (212) 778-4789 (Table deleted - too messy) We believe Cisco should be able to exceed our $0.20 EPS estimate and is likely to report $0.21. * The most prominent driver of demand growth in the quarter appears to be Internet growth, which is behind the need for additional bandwidth and broader access to the Internet. * Asian markets are showing increased activity for Cisco, and this should yield solid Q4 sales growth in some countries, with a pick-up coming in the others in another quarter or two. * We believe that the year-end outlook relative to Y2K issues is more positive than it was three months ago, although there still is uncertainty among smaller enterprises and in Asia. We expect that Cisco's very strong July quarter has the potential to come in above our EPS estimate of $0.20, with $0.21 in EPS likely. The mean of estimates published on First Call is $0.20, with virtually all estimates at $0.20, a handful at $0.21, and one at $0.19. This unusually narrow range of estimates is a result of the rounding that occurred following the stock split during the quarter. Our estimate is based on sales of $3.40 billion (sequential growth of 8.0%, and annual growth of 42.3%) and a sequential decline in the gross margin of 30 basis points to 64.7%. Cisco's sales have grown at a sequential rate in excess of 8.0% since the April 1998 quarter, and we think that this is likely again this quarter based on the strength we have seen across geographies. To achieve an added penny in EPS above our July-quarter estimate, we estimate that Cisco would need to exceed our revenue estimate by $80M or more. Alternatively, if the gross margin were above our expectation, as little as $60M in additional sales could add the penny. We believe that Cisco's hiring continued at a robust pace in the quarter, and we would expect that because of the expense of these additional investments, it is unlikely that Cisco reports earnings of $0.22 per share, even if sales come in above $3.5 billion for the quarter. (Table deleted - too messy to reformat) Asia seems to be picking up steam. We believe that activity is up across the region, and this has begun to translate into revenue in some countries. An improving Asian picture should be positive for Cisco over the next few quarters, and may help to offset any sluggishness related to Y2K that might occur late in the year. The Y2K issue looks like it is less of a risk than once feared. There is likely to be some slowing as a result of Y2K, but the evidence is building that suggests this may be only a minor impact and we sense that internally, confidence is increasing at Cisco. As the year-end approaches, we are hearing from enterprises and carriers that the opportunity cost of deferring projects is unreasonably high. While most customers are planning a period of zero or minimal changes to their operational networks, work behind the scenes to design and roll-out new systems looks likely to continue unchanged. One region, Asia, appears to be behind the others in Y2K readiness, and this may be a one-quarter wildcard, but any impact is likely to be temporary. We are already forecasting a sequential decline in earnings in Cisco's January quarter, reflecting the potential for sequentially flat to down sales. This may be overly conservative given an improving Y2K picture, but there is still a high degree of uncertainty regarding impacts in that quarter. New products appear to be coming up in volume well, and this should mean another quarter of solidly favourable mix. Transition to more voice-capable routers, for example at the low-end to the 2600 and 3600 and away from the venerable 2500, continues, and is driving higher aggregate sales. Pricing in the router area appears to be on a normal curve, which is in contrast to LAN switching, where pricing continues to decline at a more aggressive pace. However, even in LAN switching, new products such as the 6000 and 8500 families appear to be enough to make up more competitive pricing. Sales to carriers remain robust given the Internet demand, however, sales are being driven by more traditional data, rather than more voice-oriented applications. For Cisco this is not a bad trend, particularly given its strong position in data infrastructure, particularly relative to its still up-and-coming data rivals (namely Lucent and Nortel). Companies Mentioned:Nortel Networks (NT--82 1/16; rated Accumulate)Lucent Technologies (LU-63 15/16; rated Strong Buy) ______ Ibexx