To: Ibexx who wrote (3308 ) 11/6/2001 6:27:37 AM From: Softechie Respond to Cisco Systems (CSCO) 18.67 +0.77: For the period ending Oct. 27, Cisco reported pro forma net income of $332 mln, or $0.04 per share, two cents ahead of the consensus estimate. The company outdid itself on the sales front, too, posting net sales of $4.4 bln that exceeded the consensus estimate of $4.17 bln and represented a 3% sequential increase. The latter achievement was particularly noteworthy-- even to Cisco which noted in its press release that industry peers, on average, reported sequential revenue decreases in the high teens. Armed with that understanding, and an awareness that Cisco enjoyed good order linearity and was able to gain market share profitably, investors were quick to bid up Cisco's stock price ahead of the ensuing conference call. On that call, Cisco offered a characteristically detailed analysis of the just-completed quarter and provided some insight on its outlook for fiscal Q2. With respect to the former, some of the sequential highlights included a $383 mln decline in net inventories, a 7-day drop in DSOs to 24, inventory turns increasing to 5.5 from 4.6, deferred revenue jumping to $3.5 bln from $3.2 bln, operating expenses being cut by 5%, and gross margins improving to 54% from 52.3%. One other item certainly worth mentioning is that more than half of Cisco's quarterly gain was due to interest and other income-- a telling reminder that the overall operating environment remains weak. Thus far, investors don't appear to be too unnerved by that point as Cisco's headline numbers more than satisfied the masses. The same can be said for its fiscal Q2 guidance. After making repeated disclaimers about its limited visibility, Cisco provided the following guidance: flat to low single-digit sequential increase in revenue, gross margins to remain in the mid-50% range, operating expenses flat to down slightly, other income and expenses approximately flat, a tax rate of 28%, and a 60-80 mln increase in its share count. Using those assumptions, Briefing.com came up with an EPS estimate of $0.05 per share in our model after factoring a 2.5% increase in revenue, a 1% decline in operating expenses, and a share count increase of 70 mln. The current consensus estimate is $0.03. Plenty of room for improvement remains for Cisco but at least it has been able to provide the market with a reassuring sense that its business has stabilized, which is more than we can say for many of its competitors (JNPR being an exception). Clearly, Cisco displayed the strength of its brand in the enterprise market, but the big ugly question hanging over its stock now is one of valuation.-- Patrick J. O'Hare, Briefing.com
