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

To: Paul Reuben who wrote (42258)	11/5/2000 10:55:15 AM
From: Jim Lamb	Respond to of 77399

Cisco Earnings Have Investors on Edge By Eric Lai SAN FRANCISCO (Reuters) - As Cisco Systems Inc. (NasdaqNM:CSCO - news) gets set to report its earnings on Monday, worried high-tech investors are eagerly waiting to see if it can beat Wall Street estimates as it has in the past, or become another victim of slowing sales growth in the network equipment sector. Investors have rewarded industry leader Cisco with a nearly $400 billion market capitalization -- higher than that of Microsoft Corp. (NasdaqNM:MSFT - news) -- based on consistent year-on-year earnings growth over the past 10 quarters. But some analysts now believe the San Jose-based maker of computer and communications network products could be vulnerable to softer demand in the high-growth markets it depends on for its booming sales. Several major networking and telecom equipment makers and their related firms have seen their stock prices fall from lofty perches in recent weeks after reporting lower-than-expected earnings and diminished revenue growth. Nortel Networks Corp.'s (NYSE:NT - news) share price crashed by one-third and has yet to recover -- despite 42 percent year-on-year revenue growth in its most recent quarter -- because it failed to live up to even loftier growth forecasts. Other telecom equipment makers like Lucent Technologies Inc. (NYSE:LU - news), and companies that supply them including network chip makers like Copper Mountain Networks Inc. (NasdaqNM:CMTN - news), also have seen their share prices take a dive in recent weeks. CONSISTENTLY BEATS EARNINGS ESTIMATES So far, Cisco has proven a master at growing its business at a fast clip -- an average of 30 to 50 percent annual revenue growth in the last few years -- while managing Wall Street's expectations. Cisco has topped analysts' consensus estimates on earnings per share by one cent for three years and counting. For its fiscal first quarter 2001, ended September 30, analysts are estimating that Cisco will report revenue between $6.3 and $6.5 billion, with earnings per share of 17 cents vs. $3.9 billion and 12 cents in the previous year's first quarter. Cisco's roots lie in selling low-end networking hardware to businesses and that market, along with high-end equipment for large corporations, still makes up about half its sales. That area is expected to grow about 30 percent this year, according to research from investment firm, Gerard Klauer Mattison. But Cisco generates nearly a third of its sales to telecom operators, and has successfully horned in on turf formerly owned by Lucent, Nortel, and Alcatel. It is in the telecom space that Cisco may become a victim of its own success because capital expenditures by North American telecom companies are expected to grow by only 21 percent to $133 billion in 2001, according to Ryan Hankin Kent, a leading market consultancy. That growth rate is off the 30 percent recent annual growth rates in capital expenditures. Telecom service operators are struggling with high debt and low stock market valuations which make it difficult to raise more money needed to buy the type of equipment Cisco sells. Cisco's stock dropped five percent last Monday after Lehman Brothers analyst Tom Luke lowered his price target for Cisco to $60-65 from $90, based on just such concerns. Cisco was trading at $56-3/4, down about a third from its peak of $82 in March. Others are concerned Cisco could face a backlog of products and unpaid bills from financially shaky telecom operators. ``Some people are concerned about inventory issues in the channel,'' Seth Spalding, an analyst with Epoch Partners who, nevertheless, is positive about Cisco. ``I'm not one of them.'' GROWTH RATE SUSTAINABLE? Other analysts question whether the $20 billion Cisco, now that it is as huge as many old-line industrial behemoths, can sustain its fantastic growth. One factor that may help Cisco, however, is that unlike Nortel, it does not sell equipment in many of the now-declining markets like voice switches, according to recent research from Gerard Klauer's Michael Cristinziano. Cristinziano noted the concerns about spending slowdowns, but still rated the shares a buy with a price target of $80. ``Cisco is severely undervalued relative'' to other leading high-tech firms such as Microsoft Corp. and Sun Microsystems Inc. (NasdaqNM:SUNW - news),'' he wrote, adding its outlook remains positive. Faced with doubters for the first in a long time, he expects Cisco executives on Monday to come out swinging. ``A strong stock is important to Cisco's strategy,'' the bank said in its research note. ``We expect a table-pounding performance from (Chief Executive) John Chambers and his team.''

To: Paul Reuben who wrote (42258)	11/5/2000 11:28:38 AM
From: Paul Reuben	Respond to of 77399

The logical development will be a secondary market in telecommunications credit, in which these firms can sell the accounts, whether high-grade or troubled, that they have granted to customers. This is a key challenge for the banking industry, but one that should virtually eliminate concerns that the networking equipment makers will be driven out of business by their customers' bad debts. Until this is resolved through the creation of a market for this credit, it is something to bear in mind, but not a sufficient reason to back away from these companies. Risk management is a highly developed discipline, and the loan portfolios at the networking companies have, so far, been very well managed. worldlyinvestor.com