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To: bobby is sleepless in seattle who wrote (6053)	11/10/2000 7:50:45 PM
From: Susan G	Respond to of 8046

Investors Won't Lower the Bar for Cisco By Adam Lashinsky Silicon Valley Columnist 11/10/00 7:01 AM ET America continues to pore over the too-close-to-call election; Wall Street continues to scrutinize the too-close-to-call Cisco Systems (CSCO:Nasdaq - news - boards) earnings. Like the inconclusive results in Florida, investors still can't seem to make up their minds about Cisco. In the three days since Cisco reported blowout earnings that nevertheless failed to reassure investors that everything is hunky-dory in the high-tech world, Cisco's shares have traded as much as 5% over and 8% under their pre-earnings close on Monday. In heavier-than-average trading volume, 227 million shares have changed hands since Monday. The stock closed Thursday at 53 1/4, up 2%. What must be disturbing for legions of Cisco bulls is that the naysayers are starting to treat Cisco like any other suspect tech company. Its inventory buildup cratered shares of component suppliers like Broadcom (BRCM:Nasdaq - news - boards) (down 26% since the earnings announcement) and PMC-Sierra (PMCS:Nasdaq - news - boards) (off 20%). Herb Greenberg's bad-news brigade hints darkly that Cisco's rising receivables portend doom. And even a seemingly good piece of news for Cisco, its sharply increasing deferred revenues, suggest a future pothole for the king of networking-equipment companies. In its conference call, Cisco highlighted the rise in deferred revenues -- up 22% from the quarter ending July 29 to $1.7 billion -- as a sign of strength in its future. (Overall revenue rose 14% sequentially.) Deferred revenues are a liability on a company's balance sheet. They represent transactions for which the company has collected money but hasn't recognized revenue because it has promised to perform a service or provide a product in the future. Cisco says its deferred revenues are rising because of its increased use of leasing and structured loans and because it is becoming more of a "solutions-sales company." Translation: Like IBM (IBM:NYSE - news - boards) before it, Cisco is getting a larger portion of its business from consulting and maintenance. On the surface, this is indeed good news, because, as a Cisco spokeswoman says, "the revenue is coming down the road." Adds Robert Willens, an accounting expert with investment bank Lehman Brothers: "The likelihood of earning that revenue is very high. Absent some calamity occurring, those revenues will get recognized." Still, this is one sign that Cisco is maturing. And at the risk of being overly gloomy, Cisco's maturation is simply a scary thought for tech-stock investors. They want growth and consistently high margins. Cisco is growing at a rate of greater than 50% per year, but its margins are weakening. And keeping up the deferred revenues will be one more metric Wall Street will demand that Cisco maintains. "If they ever report a decline in deferred revenues, the stock will get slammed," says analyst Paul Johnson of Robertson Stephens. Analyst Paul Sagawa of Sanford Bernstein, one of the first to turn bearish on Cisco, frets that the company didn't even mention its market-share loss to Juniper Networks (JNPR:Nasdaq - news - boards) in the market for high-end routers sold to telecommunications carriers. That's why he rates Cisco a market perform (a hold in Bernsteinese) and says, "I still think there's going to be a wait on this stock." Robertson's Johnson rates Cisco a buy, but he is also downbeat. He thinks it'll take as much as a year before Cisco's shares become a buy. "Their only problem is one of valuation," he says, guessing that the stock trades sideways for the next 12 months. "In a down market, it outperforms," he offers, hopefully. Alas, to the legion of Cisco believers, that just won't be good enough. thestreet.com