Cisco: Stuck in Neutral

The WSJ has a good article today on Cisco (CSCO). The company releases its earnings after the close today.
The article basically sums up my thoughts, I can’t find a reason to get excited about the stock. The business simply isn’t that strong:

“We have looked at it because it’s come down so much,” says David Dreman, chairman and chief investment officer at Dreman Value Management in Jersey City, N.J. “But there’s not enough growth for a growth investor and not really enough value to tempt a value investor.”
That kind of blasé attitude could make it tough for Cisco shareholders to make much from their investment in the near term. A company spokeswoman declined to comment on current business trends because the company is in a quiet period before announcing results. But in the past, Cisco executives have contended that the company is growing faster than many of its big tech-company peers.
Professional investors routinely praise Cisco Chief Executive John Chambers and his management team for slashing costs and staying profitable through tough times for many tech companies. Still, the number of money managers casting their lot with Cisco is far smaller than it once was. Since 2000, the percentage of the nation’s growth funds owning Cisco shares has dropped from nearly 50% to about a quarter, according to Chicago researcher Morningstar Inc. At the same time, less than 10% of value funds own shares.
That is quite a comedown. As a maker of switches and routers that form the backbone of many tech networks, in the 1990s Cisco routinely increased its revenue at 30% to 40% annually. But after the tech bust, many big customers, such as telecommunications firms, drastically cut spending on Cisco equipment. Many smaller customers folded.
At the end of last quarter, its bread-and-butter routers business grew 13%, with sales of switches rising just 3%. With overall sales exceeding $25 billion in the 12 months ended Oct. 29, the company is up against the “law of large numbers” — the bigger a company gets, the harder it is to find new products and customers to show a big growth rate.

Posted by on February 7th, 2006 at 2:53 pm


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