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

To: RetiredNow who wrote (51372)	4/13/2001 10:41:53 AM
From: Rmooney	Read Replies (1) \| Respond to of 77399

Good, thoughtful response to good, thoughtful questions. I wish all posts were like this. Thank you.

To: RetiredNow who wrote (51372)	4/13/2001 11:50:30 PM
From: Stock Farmer	Respond to of 77399

Most unvulcan logic I'm afraid... Deserves detail. I'll try to post against each section separately over time. Meanwhile, summary for those who don't want to read long post. Abstract Six set questions, plus one open. Six answers, assertion (tripple/quad from here) and question: "How could you not buy CSCO at these prices?" Answer: easy... because nothing you said supports an increase in the stock price. Zip, nada. zero. Just blabber. Summary In reverse order: How could I not buy? Most of the reasoning you articulated held true when the stock was at $50. While most of the great unwashed might buy that as a good reason for the stock to hit $50 again, the same thinking should send me out hunting for shares of eToys. No thanks. Indeed, the question in front of investors (vs speculators) is NOT whether or not the company is the tallest midget in the crowd, fantasticly fall inlovably incharged of by his most holiest and Volpi Discipled of the great, gracious, and munificently generous leaders Chambers himself... no. The question is whether or not you would be better off paying $18 (there abouts) today for a slice, versus any number of other things like paying off your mortgage or credit card debt or buying any of a veritable cornucopia of alternative places to put cash... mattress inclusive Or in other words, is the damn thing worth $ 18 x 8 Billion, and if so why. Each statement carefully grounded in dollar figures. Let's use some quantitative analysis here. I don't want to be doing the homework that people here should be doing. But we can make it an open book exam and lay out a simple methodology. 8 B shares x 18 dollars = 144 B$, fully diluted. T-Bill return is 6% x 144 B$ = 8.64 B$ Ask: is CSCO going to generate 8.64 B$ cash flow this year. Even pro-forma earnings. Even if every one-time event down to bi-weekly paychecks are excluded (what do you think a one-time charge for layoffs is anyway). So right away those of us with T-bills might want to think twice about swinging them over. Of course, there's the Future... and Growth and the mantra... so at least put together a projection that holds water and see what it looks like. You're a cash flow guy, show me the cash flow implications of the answers to the questions. Boil it down to $ per Share. Generate a projection, discount to present value and show the logic. That would be much more vulcan. Mine comes in anywhere between $6 and $12 a share depending on assumptions. John.

To: RetiredNow who wrote (51372)	4/14/2001 12:18:25 AM
From: Stock Farmer	Read Replies (2) \| Respond to of 77399

This one I had to respond to right away: Tipped me off my chair. Blast the center piece of their growth strategy out of the water, replace it with nothing, and we're still talking an explosive appreciation in stock price? I don't get it. And this is exactly what I mean about skeletons that this thread is incapable of seeing. Not two months ago, CSCO's great acquisition strategy was a great strategy, THE fuel for growth and a sign of business health. The wrecking of the techs was a gift to mighty Mike Volpi's gobbling machine. But now that they come out and say "oops, we're stopping that, we can't really afford to be doing that any more"... well isn't it at all disturbing how the whistlers change the tune? Your thesis now becomes it was bloat and it's good that they are returning to their roots. So what once was a LYNCH PIN in CSCO's business strategy is relegated to bloat... isn't anyone else bothered by this just a tiddly little bit? Then take it a step further. If a lynch pin can disappear without a trace, what about less fundamental elements... Like, what are you going to be looking back on six months from now and saying was obvious? Maybe they cut back too deep? Maybe that the customers have gone away? Maybe that the inventory held by CSCO's off-the-books channel is what multiple of CSCO's on-the-books inventory? <<Question Six: Growth strategy? What is it, if not acquisition. Even that is not going so well. Monterey for example, turned out to be a $3M a person recruiting campaign. There are cheaper headhunters out there. Particularly when companies are laying off talent. With new standards for purchase accounting, companies can still sweep costs under the rug... but the bulge of dust is a lot more visible. So how are we going to see growth, anyway?>> You hit the nail on the head. Cisco realizes this. They don't dwell on sunk costs or past mistakes like accountants like to. When they realize something won't work, they cut their losses and move on. In addition, they also have slowed down their acquisition strategy which was used in large part as a means to ramp up headcount quick. Now they can afford to cut the bottom 10% and when business picks back up, be more choosy about who they hire and pay less for those they do hire. Sounds like a great gift to me. They are basicly using this downturn to return to their lean and mean roots. I like it from a long term perspective.

To: RetiredNow who wrote (51372)	4/14/2001 12:35:19 AM
From: Craig Lawler	Read Replies (1) \| Respond to of 77399

Thanks for the great post. I would like to research the potential write off amounts. Anyone know where I can get the following info. 1. Amount of the "loan-to-own" program (aka vendor financing) and to whom these loans where made. Gut tells me that 80% should be flushed. 2. Inventory for two quarters. Since the market is flooded with CSCO gear at probably 10 cents on the dollar due to auctions combined with the slow down in cap ex, I assume that the next two quarters are down big. Does this stuff have shelf life in terms of technical upgrades. If so, that could help the battle with the cheaper re-sale equipment but also could hurt current inventories. From Multex.com inventory went up from a year ago from about 3/4 of a B to about 2.5 B. The biggest jump in the last two quarters-and that was before the breaks really hit. So what should I guess? At least 1 B write down but this of course does not take into account any returned items and the 2.5 B number is as of 1/01 so that is old to. At least 2 B write down. 3. VC fund. I remember some sort of 1 Billion commitment earlier this year (need help-big guess). Was that cash spend or can it be called? Do they list other companies that they have invested in? If you know where to look, I will do the research and report back. 4. Real estate. They were building like crazy and have forward commitments of a few million sf. Could be an addition big cost. 1/2 B 5. Severance package. Unbelievable. This is to the same people who in the tight labor market pounded on CSCO for high pay, options, free lunch, great health care benefits, etc. And now pay them more... 1/2 B 6. From Multex.com I get the following from last qrt. About 4 B in receivables. That is up from 1.7 B a year ago. Why? Yes some sales growth but I could envision this being chopped in half via a write down. That is 2 B alone. The above quick research guess says about 4 B on the low end to 7 B on the very high end. But, I still do not know about the loan program and the VC investments? Appreciate comments and help. I do not see how CSCO can justify their valuation here but can understand that America is in love with them and every money manager from coast to coast thinks they are safe acting with the rest of the crowd if they buy them at an 80% discount. So, I do expect the stock to go up. Would some one tell me why anyone has a "buy" or "strong buy" on CSCO if the above questions are still not answered by CSCO? Also, is there any SEC regulation that you have to pre-announce a certain number of days in advance of earnings if your news is significant? May is just around the corner. Appreciate feedback. I know these are huge numbers but just look at the previous quarters. This is not a slow down in sales anymore! This is a decline in sales. They are not a young JNPR that has small sale figures that are easy to increase. They are a huge company.