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To: zonder who wrote (258800)	9/4/2003 7:04:54 AM
From: KM	Respond to of 436258

Options Move Rankles Some By SCOTT THURM Staff Reporter of THE WALL STREET JOURNAL Cisco Systems Inc. Chief Executive John Chambers said orders for the company's computer-networking equipment were "a little bit better than we expected" in August, fueling hopes the embryonic tech recovery may be spreading. But Cisco angered some investors by distributing 141 million stock options to employees Tuesday, just hours before Mr. Chambers's comments sent Cisco's stock up 3.3%, boosting the potential value of the options by $94 million. "You're transferring value from existing shareholders," said Kenneth Broad, a portfolio manager at Transamerica Funds in San Francisco. Mr. Chambers's bullish remarks marked the second time in a month that he has suggested that Cisco is beginning to emerge from the 2½-year slump in the technology sector. On Aug. 5, he told investors that Cisco was seeing "positive signs of economic recovery." Cisco, based in San Jose, Calif., is a closely watched bellwether of tech spending, particularly by corporations. Quarterly revenue at Cisco has been essentially flat for more than a year, and a significant increase would echo recent comments from semiconductor behemoth Intel Corp., and indicate that corporations, which account for the vast majority of tech purchases, were joining consumers in increasing outlays. As he typically does, Mr. Chambers couched his optimism with caution. He said August is "usually a soft month" and he "wouldn't get overly excited" about the stronger-than-expected orders. Moreover, Mr. Chambers didn't change Cisco's formal projections for its fiscal first quarter ending in October. Last month, Cisco told investors to expect little increase in revenue, compared with its fourth quarter, excluding its recent acquisition of Linksys Group Inc. Investors and analysts drew differing conclusions. Robert Turner, chairman of Turner Investment Partners in Berwyn, Pa., said Mr. Chambers's comments were "not surprising," because corporations have been gradually increasing spending on technology as their own profits recover. But Mr. Turner, who has been bullish on tech stocks for most of the year, said those stocks now largely reflect the coming tech-sector recovery. In 4 p.m. Nasdaq Stock Market trading Wednesday, Cisco shares were up 65 cents to $20.24, their highest level since January 2002 and more than double their low of $8.60 last October. Gabriel Lowy, an analyst at Blaylock & Partners, said Cisco's August orders were "not a significant indicator" of increased corporate tech spending. He said much of the order pickup likely was due to increased spending by the federal government, whose fiscal year ends Sept. 30. The debate over Cisco's prospects was partly obscured by the flap over the timing of its option grants. Paul Hodgson, a senior research associate at the Corporate Library, which studies corporate governance, said Cisco executives appear to be "taking advantage of inside information that wasn't made available to regular shareholders at the same time." A Cisco spokeswoman said employees won't be able to exercise any of the options for one year and some for as long as five years. "It's the company's future performance, not John Chambers's comments today, that determine the ultimate value of these options," she said. Cisco doesn't grant options on a regular schedule. In the past year, Cisco granted options in October 2002 and in April 2003. The spokeswoman said the timing of Tuesday's grant was determined by the Cisco's board's compensation committee, made up entirely of outside directors. She said the committee began considering the grant in July and approved it Tuesday. Roughly 2% of the options went to Cisco's executive officers. Mr. Chambers didn't receive any. Write to Scott Thurm at scott.thurm@wsj.com