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I believe this is the article a few posters have inquired about regarding CSCO. From the Canadian daily, The National Post. www.nationalpost.com
PS: Happy New Year to all G & Ks. Better luck to us this year.
mariner
Battleship Cisco losing the war, says analyst
Downgraded to 'hold'
Scott Adams
Financial Post, with files from Bloomberg News
H. Darr Beiser, USA Today
John Chambers, chief executive of Cisco Systems, concedes that a slowdown in customer spending has affected the company.
Don't buy the battleships, so don't buy Cisco Systems Inc.
That was the bold call yesterday by Steve Kamman, analyst with CIBC World Markets, as he initiated coverage on Cisco and other companies in the networking equipment industry.
Mr. Kamman's downgrade on Cisco shares from a "buy" to a "hold" was enough to send the stock tumbling as much as 10% and fuelled more uncertainty in the battered technology sector.
Once the pride of every naval fleet, battleships fell into obsolescence in the Second World War, unable to defend themselves against air bombers.
"When everyone starts buying up battleships, it's time to start investing in aircraft carriers," Mr. Kamman wrote in a note to clients.
Cisco isn't well positioned to sell the latest, best-of-breed networking gear, he said.
Thus, it is time to buy stocks in some of the newer and smaller companies -- the "aircraft carriers," Mr. Kamman said.
"We do not believe Cisco is well positioned to meet an expected Tsunami of changes in the telecom market," he said.
"We believe Cisco will not make consensus revenue estimates in fiscal 2002 and expect it will no longer be able to rely on appreciating stock as a currency" to make acquisitions.
Mr. Kamman's comments came on the same day that Cisco chief executive John Chambers admitted that its second quarter has been "a little more challenging" than expected because of a slowdown in customer spending.
"If there's a slowdown in capital spending, will Cisco be affected? Absolutely," Mr. Chambers told a Morgan Stanley Dean Witter conference in Arizona.
It was the first time Mr. Chambers has spoken to investors since Dec. 4 when Cisco said it expected revenue to rise 50% to 60% in fiscal 2001.
Cisco didn't change its guidance yesterday, but Mr. Chambers did say the company has slowed its hiring pace. "Our visibility isn't as good as it normally is," he said, adding that Cisco won't slow its pace of acquisitions.
Cisco (CSCO/NASDAQ) fell as low as US$33 41/64 yesterday, but ended down 7/8 at US$36 1/4.
As for the aircraft carriers, Mr. Kamman isn't positive about all of them. He started coverage of Redback Networks Inc. (RBAK/NASDAQ) by cutting it to "hold" from "buy." The stock rose US$5 7/16 to US$40 7/8.
But he has "buy" ratings on others. He cut Juniper Networks Inc. (JNPR/NASDAQ) to "buy" from "strong buy," but rates both Extreme Networks Inc. (EXTR/NASDAQ) and Foundry Networks Inc. (FDRY/NASDAQ) a "buy". Juniper rose US$2 1/8 to US$119 5/16, Extreme rose 7/8 to US$42 and Foundry rose 7/8 to US$12 1/4.
Perhaps his most surprising pick is Lucent Technologies Inc. (LU/NY), which he raised to "buy" from "hold," while placing a target of US$20 on it.
"We believe the stock represents a reasonably safe harbour to ride out what look to be a choppy few quarters," Mr. Kamman wrote. "Note that we do not minimize the significant operating and strategic challenges ahead for the company." Lucent rose 13/16 to US$17 5/8.
Mr. Kamman was the CIBC analyst who followed the communications service providers -- the customers of Cisco and equipment companies. His insight into the customers has led him to believe big changes are happening in the carrier networks.
Carriers have been trying to upgrade and change their voice networks so they can handle data and the Internet. But Mr. Kamman believes those efforts will ultimately fail.
He believes that insurgent carrier companies will build simpler, more flexible and lower-cost networks based on technologies such as optics. Equipment companies that sell gear to these insurgents will do better.
"We expect winning companies will be those building equipment to cannibalize and disrupt the existing public network architecture, not to sustain it," he said.
Part of Cisco's success, too, has been that it can sell a full network system.
It is much easier for a customer to go to Cisco and buy a complete system than to go to various smaller players and buy parts of a system.
But Mr. Kamman believes this advantage is also disappearing, as customers are demanding the most innovative, best-of-breed equipment, rather than a complete system.
How does CIBC think will this affect Nortel Networks Corp.? Mr. Kamman won't cover Nortel, as it is followed by CIBC analyst Todd Coupland in Toronto, who could not be reached for comment.
But Gus Papageorgiou, analyst at Scotia Capital, said that though Nortel and Cisco compete against each other in various equipment product, Cisco's main business is in routers, where it is competing against the likes of Juniper, while Nortel's main business is in transmission equipment. Nortel is actually partnered with Juniper for routers, he said.
Nortel's leadership in optical transmission should also mean it can avoid becoming a battleship, Mr. Papageorgiou said.
CISCO SYSTEMS INC.:
CEO: John Chambers
Ticker: CSCO
Listed: Nasdaq stock market
Head office: 170 West Tasman Drive San Jose, Calif. 95134-1706
Telephone: (408) 526-4000
www.cisco.com |
