Oh yes. Oh my:
July 20, 1998
Cisco Passes Significant Milestone,
Topping $100 Billion in Market Value
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Of all the recent bull-market milestones, few were as impressive as the one
reached Friday by Cisco Systems Inc. On the strength of a $4 surge in its
stock price, the San Jose, Calif., maker of computer-networking gear saw
its market capitalization roll past $100 billion.
The achievement is noteworthy because Cisco reached the century mark
after just 12 years in business, in what is believed to be the fastest such
acceleration ever. Microsoft Corp., by contrast, required roughly 20 years
to do the same thing, and while Lucent Technologies Inc. has been public
only since 1996, the company is a spinoff of long-established operations at
AT&T Corp.
But equally impressive is the fact that even
with Cisco's spectacular recent performance,
most people think the company is just getting
started. There are certainly dissenting voices, but most analysts say Cisco
will continue to grow as the Internet grows, especially as the company
expands to transmit not just computer data, but also telephone and even
television signals. As such, Cisco is among the rarest of Wall Street birds:
an Internet-driven company with a proven business plan, actual products
and ample profits.
"These guys are the best play on the Internet," said Paul Weinstein of
Credit Suisse Group's Credit Suisse First Boston, whose "buy"
recommendation Friday is credited with pushing Cisco shares up 4.2% to
$99.75 in Nasdaq Stock Market trading.
Cisco began life by selling the routing devices that directed data traffic
around the Internet. It expanded, primarily through acquisitions, to add
hubs, switches and other hardware that companies use for their computer
networks.
Complete Product Line
The corporate market for such gear totals about $30 billion a year. Cisco
has been successful in the field not necessarily because it had the best
technology, said analyst Deb Mielke, a consultant with TeleChoice Inc. in
Verona, N.J., but because Cisco had the most complete product line,
along with aggressive marketing and support organizations.
Wall Street continues to expect a lot from Cisco -- 29 of 32 analysts rate
it a "buy" or a "strong buy" -- because telephone carriers are starting to use
Internet-style data-networking gear to transmit voice signals. That
increases Cisco's potential market sixfold, and the company has
momentum and experience to give it a leg up as networking concerns begin
to collide with suppliers of conventional telephone equipment.
Indeed, a fear of Cisco has been one of the biggest spurs to Wall Street
deal-making this year, as the telephone establishment augments its catalogs
with Cisco-style data products. The biggest deal to date was last month's
$7.6 billion agreement by Northern Telecom Ltd., Toronto, a leading
telecom supplier, to buy Bay Networks Inc., Santa Clara, Calif.
Industry analysts say they wouldn't be surprised by an even bigger
anti-Cisco deal later this year, the possibility that Lucent might snap up
Ascend Communications Inc., another big Silicon Valley networking
concern. Ascend, with a market capitalization of more than $10 billion, is
an attractive candidate because it continues to beat Cisco in several key
categories of specialized Internet-related products. Lucent and Ascend
declined to comment.
Spreading the Wealth
At its current growth pace, the networking game holds promise for all the
players. For that reason, Scott Schoelzel, portfolio manager at Janus
Capital Corp. -- whose 3% share of Cisco makes it that company's
second-largest stockholder -- says he also owns stakes in Lucent and
Nortel.
Funds such as Janus Capital hold most of Cisco's stock. In fact, one of the
striking things about the company is that for such a young and successful
technology supplier, it hasn't produced the usual teeming flock of
techno-billionaires. Indeed, only John P. Morgridge, Cisco's chairman and
onetime chief executive, has enough Cisco shares to give him that status.
The reason has to do with a bit of company history. In 1990, Cisco's
founders, Leonard Bosack and Sandy Lerner, were pushed out of
management, and promptly sold all of their 35% stake on the open market
for what then seemed like an impressive $170 million. That position would
be worth $35 billion today.
While Cisco is generally free of billionaires, it may have produced more
millionaires than any other company in Silicon Valley, thanks to stock
options. One executive recruiter said he routinely finds managers two and
even three levels deep in the company who are worth $10 million to $15
million. John Chambers, Cisco's president, himself is worth well above
$100 million.
While they may be hard to find, there are bears on Cisco. Paul Sagawa, an
analyst with Sanford C. Bernstein & Co., said that for all the talk of
Cisco's moving into the telecommunications market, the company still gets
most of its revenue from corporations setting up data networks. Prices in
that market, he said, have been plummeting because of new-generation
router products from Bay Networks as well as 3Com Corp.
Cisco's management routinely warns that its profit margins could start to
drop, but that hasn't yet occurred. Mr. Sagawa worries that investors have
convinced themselves it never will. "I am concerned that Cisco has actually
been frank in its assessment of its business," he said.
With the company's accelerating success, Cisco is eager to be seen not
just as a networking "plumbing" supplier, but as the spur of the entire
Internet revolution. Mr. Chambers now courts policy makers, journalists
and executives: At the executive summit Microsoft Chairman Bill Gates
recently held, in part at his famous house, Mr. Chambers was a featured
speaker. On Friday, though, neither he nor other Cisco executives were
available to comment on their corporate milestone. The company was in its
"quiet period," leading up to its next quarterly earnings report, one which
Wall Street expects to be another standout success.
interactive.wsj.com
When Cisco splits, my bet is that it shall be 2:1.
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