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To: Dealer who wrote (2613)	9/20/2000 3:15:22 PM
From: Dealer	Respond to of 65232

CSCO--Magic 25: Cisco, Net2Phone Form Internet Telephony Venture Senior research analyst: Luciano Siracusano (09/20/00) On Monday, Net2Phone Inc. (NASDAQ: NTOP - news) announced it would team up with Magic 25 selection Cisco Systems (NASDAQ: CSCO - news) to create a new company named Adir Technologies to capitalize on the burgeoning market for Internet telephony. Internet telephony works by converting analog signals into data packets for transmission over the Web. Net2Phone, which began as a subsidiary of Newark-based IDT Corp. (NASDAQ: IDTC - news) , has developed technology that uses the Internet to transmit low-cost phone calls from telephones, computers or fax machines. By routing calls via the Internet rather than traditional telecommunications equipment, Net2Phone enables users to save up to 95% off international phone rates. According to a recent study by Frost & Sullivan, Net2Phone leads the Internet telephony services industry with 30% market share. Cisco, which has been expanding its products and services in the Voice over Internet Protocol (VoIP) market, will join Net2Phone to market Adir's network management platform to its VoIP customers. Cisco has also taken a minority stake in the new company. Net2Phone will retain a majority interest in Adir. Howie Balter, Chief Executive Officer of Net2Phone, said, ``While most telecom and Voice over IP equipment has been designed for heavy call processing, the software intelligence behind it has been lacking. Through the formation of Adir, we hope to enable service providers with the 'brains behind the equipment,' allowing them to realize the full value of their networks.'' The combination furthers Cisco's goal of delivering voice, video and data services over broadband networks. Cisco's ability to develop new products to sell into the VoIP, Digital Subscriber Line (DSL), and Virtual Private Network (VPN) markets underscores its strength in managing traffic over Internet Protocol. But Cisco's future, and the multiple Wall Street is willing to assign its stock, is just as dependent on the company's ability to ramp up its optical networking offerings. Market leader Nortel Networks (NYSE: NT - news) is now contemplating doing as much as $12 billion in optical revenues in the coming twelve months, according to news reports this week. By contrast, Cisco, through its acquisition of Cerent, is on track to generate $1 billion in revenues in the coming year. The next three to six months will be critical for Cisco. It should become clear by then whether products in development by recently acquired Pirelli, Qeyton and Monterey are finding market acceptance and generating significant sales to round out Cisco's optical transmission portfolio. Cisco's point man on fiber optics, Carl Russo, acknowledged as much in a recent interview with optical networking Web site LightReading.com: ``At the end of two years [control of the optical networking market] is all going to be sorted out, such that three or four years later, with the benefit of hindsight, you'll be able to look back and go 'yep, there it was' -- you could have seen who was going to win if you were looking.'' Russo believes that in the next 12 to 18 months revenues from Cisco's optical networking products will exceed sales generated by its core routers. With Cisco approaching a crossroads, investors should monitor such milestones closely. At this point, considering the company's history, we give Cisco the benefit of the doubt that it will be able to navigate the transition successfully. Until such evidence develops to suggest otherwise, we maintain our Buy recommendation on Cisco shares. Bottom Line: Cisco and Net2Phone's joint Internet telephony venture has the potential to boost Cisco's market position in the Voice over Internet Protocol (VoIP) market. It will take time to see how well they execute this strategy. Since Cisco has a good track record, we give the company the benefit of the doubt. Updated September 18, 2000 with CSCO at $63.25 Recommended December 10, 1999 at $49.90. (The Magic 25 is a diversified portfolio of stocks that Individual Investor believes will outperform the market over the course of the year. In 1999, the Magic 25 portfolio was up 79.3%. On average the portfolio has risen 31.6% annually.)