I believe in their report to SEC last November or December, CSCO said that it believed it could maintain 35% margins.
I had a copy of this report on file. After I read it, I filed it again, except it wasn't there when I went to look for it. Maybe, I can find the news item in my outbox or trash.
Earnings last quarter were very, very good.
On May 1, The Motley Fool ran an article on CSCO that I interpreted as positive.
Talking With Cisco Systems
Cisco is not just for routers anymore
By George Runkle (TMF Runkle)
EXCERPTS from Mr. Runkle's article follow:
"Two weeks ago in my column on Nortel (NYSE: NT) , I eliminated Cisco Systems (Nasdaq: CSCO) from the comparison because-- I wrote -- Cisco does not provide fiber optics, enterprise solutions, telephones, etc. That misconception elicited immediate responses from many Cisco employees. Looking deeper into this company, I learned that I was incorrect.
Now, quick, when you hear of Cisco Systems, what do you think of? I always thought of routers, and if you look at the company's profile on any investing site, all that is mentioned is networking products. Last week an analyst appeared on CNBC and was asked his opinion of the company, and he spoke glowingly of Cisco's router sales.
This past week, I called Cisco and received quite an education regarding everything the company does. Originally, this company was a router manufacturer, but it has shown the ability to transition. Cisco is now a full-solution provider for small and medium-size businesses, service providers, and corporations. Service providers are providing over 80% year-over-year growth.
Cisco also stated that it is going right up against Nortel and Lucent Technologies (NYSE: LU) , and it believes (not surprisingly) that no other company provides solutions like it does.
What we are seeing in the industry (as we've mentioned before) is a convergence of voice and data. In the conversation that I had with Cisco's representative, I was informed that dedicated voice networks tend to be very proprietary and data networks are very open. Also, data networks are more innovative and standards-based. Cisco is aiming to bring the two networks together, which can provide significant efficiencies and savings.
Let me talk a little bit about my own experience on this topic. In my previous life as a facilities engineer, we needed to provide a significant amount of resources to our data network and to our phone system. Both required back-up power, back-up air conditioning, conduit, and square footage for servers and switches. Also, every time we built or renovated a building, we needed to provide for two sets of wiring. Whenever you moved an office, the communications people went through significant trouble to rewire phones so people could keep their same telephone numbers.
With a converged network, you would have reduced expenses for your physical plant, since you don't need two sets of back-up power or two sets of wiring, and you would have reduced air conditioning and square-footage requirements. From the communications standpoint, each phone has its own IP (Internet Protocol) address, so when you move an office, your phone just needs to be carried in and plugged in the new jack -- no rewiring the cabinet, etc.
My concern was the reliability of the data network; we've all experienced server crashes. According to the Cisco representative, a data network can be constructed
to be as reliable, or more so, than the phone network.
Going from networks, we discussed IP vs. ATM (Asynchronous Transfer Mode). One of the key differences in ATM has been its ability to prioritize voice over data, and provide higher quality. IP is a bit more flexible than ATM in how it routes data over a network, and in my understanding of the technology, IP can be carried over ATM. I was informed that there is software available that allows IP to prioritize voice over data (which I've also been told by
others in this industry). However, ATM will be around for a while, and Cisco also provides for this technology. They stated they will provide any type of network the client wants.
Further in our conversation, I was informed that to make money as a service provider, you have to provide for data as well as voice traffic.
The older companies are supplementing voice with data, and the newer ones are going directly to data. We are also seeing video transmitted through networks, as video conferencing is getting more important.
I asked about optical networks and I was told that Cisco has a fairly complete end-to-end optical solution for customers. They have expanded into this area with acquisitions of Pirelli, Cerent Corporation, Monterey Networks, and Pipelinks. Over the next few years,
they see this area growing to a $30 billion to $50 billion industry. Cisco was able to go from zilch in revenue to a $400 million *annual* run in *six months*. (Astericks are mine-Mephisto)
Summing up our conversation, I was told that Cisco is able to provide a variety of solutions from the home, to Enterprise Solutions, small and medium-size businesses, and to service providers. Growth will be a matter of execution, and they see their key competitors as being Lucent, Nortel, Juniper Networks (Nasdaq: JNPR) , Foundry Networks (Nasdaq:
FDRY) , and Redback Networks (Nasdaq: RBAK) .
By 2003, the converged data and voice market opportunity will be about $155 billion. Had Cisco stayed in traditional data alone, the market opportunity would probably have been only $60 billion. Management believes that Cisco can change when necessary, and it has shown it is able to do so." |
