Dale, on CSCO, from the latest 10Q which I assure you many MFMs with
millions invested in the stock did not read first hand but had the
fdigested version of some analyst fed on a one page memo(including
Mr. Cramer):
As the Company focuses on new market opportunities, such as transporting voice,
video, and data traffic across the same networks, it will increasingly compete
with large telecommunications equipment suppliers, and well funded start-up
companies. Additionally, as customers in these markets complete infrastructure
deployments, they may require greater levels of service, support and financing
than the Company has experienced in the past. There can be no assurance that the
Company can provide products, service, support and financing to effectively
compete for these market opportunities. Readers are referred to the
"Competition" section of the Company's Form 10-K filed on October 22, 1997 for
further discussion.
The Company expects that in the future, its net sales may grow at a slower rate
than was experienced in previous periods, and that on a quarter-to-quarter
basis, the Company's growth in net sales may be significantly lower than its
historical quarterly growth rate. In recent quarters, the sequential sales
growth has slowed from prior levels, and a disproportionate share of the sales
has occurred in the last month of the quarter. As a consequence, operating
results for a particular quarter are extremely difficult to predict. The
Company's ability to meet financial expectations could be hampered if the
nonlinear sales pattern continues in future periods. The Company generally has
had one quarter of a fiscal year when backlog has been reduced. Traditionally,
it has been the third quarter, when the purchasing volumes of large
telecommunications service providers tend to be seasonally low. Although such
reductions have not occurred consistently in recent years, they are difficult to
predict and may occur in the future. In addition, in response to customer
demand, the Company continues to attempt to reduce its product manufacturing
lead times, which may result in corresponding reductions in order backlog. A
decline in backlog levels could result in more variability and less
predictability in the Company's quarter-to-quarter net sales and operating
results going forward. On the other hand, for certain products, lead times are
longer than the Company's goal. If the Company cannot reduce manufacturing lead
times for such products, the Company's customers may cancel orders or not place
further orders if shorter lead times are available from other manufacturers,
thus creating additional variability.
The Company has not been significantly impacted by the recent unfavorable
economic conditions in certain Asian and Pacific Rim countries. If the economic
conditions in these markets worsen, or if these unfavorable conditions result in
a wider regional or global economic slowdown, this may have a material adverse
impact on the Company's business, operations and financial condition. The
Company continues to monitor activity in the region closely.
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is concerned
that many enterprises will be devoting a substantial portion of their
information systems spending to resolving this upcoming year 2000 problem. This
may result in spending being diverted from networking solutions over the next
two years. The Company is still assessing the impact the year 2000 issue will
have on its products and internal information systems and has begun corrective
efforts in these areas. The Company does not anticipate that addressing the year
2000 problem for its internal information systems and current and future
products will have a material impact on its operations or financial results.
However, there can be no assurance that these costs
13<PAGE> 14
will not be greater than anticipated, or that corrective actions undertaken will
be completed before any year 2000 problems could occur. The year 2000 issue
could lower demand for the Company's products while increasing the Company's
costs. These combining factors, while not quantified, could have a material
adverse impact on the Company's financial results.
The Company has certain key relationships with suppliers. If these suppliers
fail to adequately address the year 2000 issue for the products they provide the
Company, this could have a material adverse impact on the Company's operations
and financial results. The Company is still assessing the effect the year 2000
issue will have on its suppliers and, at this time, cannot determine the impact
it will have.
The Company also expects that gross margins may be adversely affected by
increases in material or labor costs, heightened price competition, and changes
in channels of distribution or in the mix of products sold. For example, the
Company believes that gross margins may continue to decline over time, because
the markets for lower-margin access products targeted toward small to
medium-sized customers have continued to grow at a faster rate than the markets
for the Company's higher-margin router and high-performance switching products
targeted toward enterprise and service provider customers. The Company has
recently introduced new products with several new products scheduled to be
released in the near future. If warranty costs associated with these new
products are greater than the Company has experienced historically, gross
margins may be adversely affected. The Company's gross margins may also be
impacted by geographic mix, as well as the mix of configurations within each
product group. The Company continues to expand into third-party or indirect
distribution channels, which generally results in lower gross margins. In
addition, increasing third-party and indirect distribution channels generally
results in greater difficulty in forecasting the mix of the Company's products,
and to a certain degree, the timing of its orders.
The Company's growth and ability to meet customer demands also depend in part on
its ability to obtain timely deliveries of parts from its suppliers. The Company
has experienced component shortages in the past that have adversely affected its
operations. Although the Company works closely with its suppliers to avoid these
types of shortages, there can be no assurance that the Company will not
encounter these problems in the future.
The Company also expects that its operating margins may decrease as it continues
to hire additional personnel and increases other operating expenses to support
its business. The Company plans its operating expense levels based primarily on
forecasted revenue levels. Because these expenses are relatively fixed in the
short term, a shortfall in revenue could lead to operating results being below
expectations. The results of operations for the quarter ended January 24, 1998
are not necessarily indicative of results to be expected in future periods, and
the Company's operating results may be subject to quarterly fluctuations as a
result of a number of factors. These factors include the integration of people,
operations, and products from acquired businesses and technologies; increased
competition in the networking industry; the overall trend toward industry
consolidation; the introduction and market acceptance of new technologies and
standards, including Gigabit Ethernet Switching, Tag Switching, currently also
known as multiprotocol label switching (MPLS) and voice, video and data
products; variations in sales channels, product costs, or mix of
14<PAGE> 15
products sold; the timing of orders and manufacturing lead times; and changes in
general economic conditions, any of which could have a material adverse impact
on operations and financial results. |
