Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Lizzie Tudor who wrote (63239)	3/13/2003 3:50:25 AM
From: Elroy	Read Replies (2) \| Respond to of 77400

This is a valuable lead, true. But is it sustainable, I don't think so at this point. There is too much electronics manufacturing in asia, there are software companies galore, portals, you name it. So assume asia is a moving target as far as innovation and expertise is concerned. CSCO outsources to SLR and JBL who have manufacturing in Asia, so CSCO is getting the manufacturing cost benefit of producing in Asia. There are not software companies galore in Asia outside of India, and especially not in China. All China has going for it at the moment is low cost labor and facilities/propery prices. Name one Chinese technological innovation. I just don't think they can survive in their current form with GMs where they are unless some severe cost cutting goes down, especially against the workforce. Your mistake here is assuming Cisco's high gross margins are due to supreme manufacturing efficiencies - that is not the cause. Cisco's manufacturing is superb, but doesn't explain why their margins are 25% higher than SUNW's (Unix servers), 35% higher than NT's (telecom equipment), 40% higher than HPQ's (general everything in IT hardware) and 52% higher than Dell's (PCs). Cisco's gross margins are super high because competitors in networking lack pricing power due to Cisco's monopoly position in the industry. No corporation with a brain will put Wordperfect rather than MSFT Work into their company's MSFT-based PCs, and no corporation is going to put much COMS/NT/EXTR/Huawei equipment into their Cisco-based network. As a customer wants to expand its network which currently has Cisco 10Mb Ethernet switches, Cisco 10/100MB Ethernet switches, Cisco routers and Cisco security and Cisco network management software, do you think they are going to buy some Huawei Gigabit switched because they are less expensive, and then have to deal with two sets of support teams, two sets of salespeople, and when the network has a problem listening the the Huawei people say "it's the Cisco gear" and the Cisco people say "It's the Huawei gear"? Virtually all major enterprises have LANs and WAN connections already, most of them are based on Cisco, most of them view the network as mission critical (and thus not so price sensitive) so they will pay through the nose for CSCO gear. Just look at Dell. They have entered networking equipment, trying to provide commodity products at much lower prices than CSCO, and have recently admitted that it will not be one of their big growth initiatives in the coming years. Citibank is not going to try to save $1,000 per 48 port 100MB ethernet switch by putting a Dell switch into their Cisco network. If they do outsource all the development and most day to day workers to india then I would buy cisco because I think the upper management is superior, its only the mid level workers that can't be here, people making between 90-150K or so. We've been through this with other industries so nothing new, and cisco could be a poster child for a divisional outsource since they are the internet champion, it could be a good thing. But no way should they have 4000 US based employees in silicon valley given their competitive position at this point, jmo. MSFT (another monopoly) has done fine with their 1,000s of $125k per year employees in Seattle. Cisco will do fine with their current employee costs, unless you can explain what is going to cause pricing pressure in networking. And that's my opinion! Elroy