In Focus

Unscrambling Cisco

Putting Cisco through the Chicks' Dozen
by Chick Susie

I'm the unfunny Chick. Yes, there's always one in every brood. You know, that straight forward, factually dull one who sends emails to her kids that sound like the opening line of a piece of business correspondence. That's me and here is a straightforward look at Cisco Systems as it measures up to the Chicks Dozen.

1. Buy What You Know

Cisco Systems is the worldwide leader in networking for the Internet. They create hardware and software solutions that link computer networks so that people have easy access to the information presented therein. Each one of the Chicks has remarkably high I.Q. That's not intelligence quota for these purposes, though I know, if tested, we would rate rather high, but more accurately Internet Quotient. Simply put, in a few short years, some of us have gone from ground zero in computer skills to our present level of competence. Why, because of the consistent improvement of access, technology, software, hardware and Cisco is a dominant player in that arena.

2. Keep It Simple Sister (KISS)

Cisco consumers are divided into three main solutions. Enterprises, which are large organizations with complex networking needs; service providers, who are the companies that provide information services, including telecommunication carriers, Internet Service Providers (like AOL and Yahoo), cable companies and wireless communication companies; and small to medium size businesses. This isn't tough to decipher as we, the consumer are the end-user of the technology, software and hardware that Cisco provides to each of its customer groups. Every single person accessing the Internet is likely to interface, perhaps without knowing it, tools in place by Cisco.

3. Industry

Cisco Systems major competitors are 3Com, Lucent, Nortel Networks, but Cisco controls more than three-quarters of the global market for products that link networks and power the Internet including routers and switches. 75% is a sure sign of dominance in any industry, short of a monopoly. Cisco also has an aggressive venture-investing group that has made nearly 70 acquisitions since 1993 which is unparalleled in the industry.

4. Leader In Its Field

Without question, this company is the standout within its industry and has received huge recognition outside its industry. For example, ranked #146 in Fortune 500, member of the S&P 500, member of Dow Jones Global Titans and #4 ranking in Financial Times Global 500. The product and technology awards are way too long to list here and it would probably bore you to tears, but check out their web site at www.cisco.com for a complete list. Incidentally, Fortune lists Cisco as the #3 Best Place to Work and the #4 Most Admired Company.

5. Repeat Profitability: Yes

6. Gross Margins: 18,928 - 6,746/18928 = 64.3%

7. Net Margins: 2,668/18,928 = 14.1%

8. Cash to Long Term Debt: No debt

9. Flow Ratio: 13059-6391/5802 = 1.15

(Note: This has worsened since last quarter as receivables and inventories have increased but during the conference call John Chambers indicated that while the dollar amount of inventories and receivables had increased the total deliverable days of inventory had remained unchanged.) I used Cisco Systems 2000 Annual Report, subtitled Discover All That's Possible on the Internet for my numbers source. I chose to use the annual report to do my numbers, but you could also use the quarterly statements. The numbers come out pretty much the same. Financials also available at www.marketguide.com.

10. Increasing Growth

Yes, for eight consecutive quarters Cisco reported double-digit sales growth versus one year ago and also reported their 11^th consecutive quarter of revenue growth year over year. (I listened to the replay of the Cisco conference call with analysts and shareholders on Monday, November 6; this was a first for me, it was an enlightening experience.)

11. Management and Operating History

John Chambers joined Cisco in 1991 as Senior Vice President of Cisco's Worldwide Sales and Operations, just four years later he was named CEO and President and assumed that position in 1995. Cisco is one of America's great corporate success stories. It shipped its first product in 1986 and has grown into a global market leader. The company went public in 1990 and now has one of the largest marketing capitalizations in the world.

12.On Sale?

Cisco's 52-week high was 82.00/share and their low was 34.93/share to right now, trading in the low 50's. Cisco is on sale!