CSCO News From WSJ; December 18, 1997
New Firms' Network Ambitions
Aren't Yet Seen as Cisco Threat
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- Cisco Systems Inc. was among the strongest
technology stocks on Wednesday, as the sector posted gains before
slipping into negative territory late in the day. Analysts believe the
networking-gear company is well ahead of its competitors, at least
for now.
On its first day of trading after a three-for-two stock split, the San
Jose, Calif., networking giant's stock was among the most actively
traded issues on the Nasdaq Stock Market, rising 3/4 to 54 3/16. It
was lifted, in part, by news that Goldman Sachs & Co. added the
stock to its recommended list.
On Wednesday, the Nasdaq Composite Index surrendered early
gains to close down 5.63 at 1547.37, while Morgan Stanley's
high-tech 35 index fell 3.85 to 427.71.
Cisco still commands the awe of most
analysts for its formidable position in the
market for data networking gear. A sharp
rise in its inventory levels -- disclosed last
week Securities Exchange Commission
documents -- hasn't shaken analysts'
confidence in its stock, though skittish
technology investors drove Cisco shares
down 7% last Friday.
With its awesome breadth of products,
Cisco still retains a sizable lead over
traditional networking rivals like 3Com Corp., Bay Networks Inc.
and Cabletron Systems Inc. And relative newcomers to data
networking from the voice telecommunications market, including
giants Lucent Technologies Inc. and Nokia Oy, aren't much of a
threat yet either, analysts said.
"They're still so far apart in terms of their capabilities in the data
networking space that ... it's not yet worthwhile to question their
ability to dislodge Cisco from its dominant space," said Noel
Lindsay, an analyst at Deutsche Morgan Grenfell.
Over time, though, the telecommunications-equipment companies
could become more formidable, some analysts believe. "It won't
take many acquisitions before you have to stop saying that about
Lucent," said Bill Rabin, an analyst at J.P. Morgan Securities, in
reference to assertions that the telecommunications companies are
toothless.
Last week, Lucent announced plans to buy Prominet Corp., a
maker of gigabit Ethernet switches, in a $200 million stock deal. In
October, Lucent beefed up its position in the remote-access
equipment area, buying Livingston Enterprises Inc. for $650
million in stock. Last week also saw Finnish wireless phone
company Nokia announce plans to acquire Ipsilon Networks Inc., a
pioneer in so-called IP switching equipment, for $120 million.
"I really do believe one of the things you have to understand about
Cisco is the competition has not really shown up yet," Mr. Rabin
said. "I have been consistently saying to the investment community
to watch out for this. It hasn't shown up, but it will soon."
Mr. Rabin remains positive on Cisco's stock, but he said companies
like Lucent, Siemens AG and Northern Telecom Ltd. have a
number of key assets in their favor, including a reputation for
building extremely reliable voice-communications switches, that
could benefit them in the networking sector. Such companies are
also accustomed to lower profit margins than vendors like Cisco, a
fact that could help them compete aggressively on price in the data
market, Mr. Rabin said.
Still, telecommunications companies have a long way to catch up to
Cisco's range of products, which ranges from remote-access
equipment to switching gear to network-management software,
said Farrokh Billimoria, an analyst at Hambrecht & Quist L.L.C.
And even Mr. Rabin said he doesn't expect such companies to pose
much of a threat for the "next three to four quarters." In the
meantime, he remains bullish on Cisco's stock.
"My view is, when Cisco [stock] gets weak, back the truck up" to
dump money into it, he said.
Among other tech stocks Wednesday, shares of Ascend
Communications Corp. fell 2 1/8 to 24 3/4. Ascend was removed
from Goldman Sachs' recommended list and rated "market
outperform" -- as was 3Com, which fell 3/4 to 34 1/2.
International Business Machines Corp. slid 1 3/4 to 102; Compaq
Computer Corp. slipped 3/4 to 51 3/4; Microsoft Corp. fell 3 7/16
to 135 5/8; and Ramtron International Corp. rose 9/16 to 5 15/16.
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