Why Cisco Didn't Rock Last Quarter

Oh! I wish, I wish I hadn't killed that fish.
-- Homer Simpson, Treehouse of Horror V

Homer's lament on accidentally changing the future again also describes how I feel about Cisco Systems (Nasdaq: CSCO  ) . Oh, I wish Cisco hadn't killed its most important partnerships!

To be clear, Cisco didn't exactly eviscerate its future when the company got into selling its own server systems in direct competition with IBM (NYSE: IBM  ) and Hewlett-Packard (NYSE: HPQ  ) . CEO John Chambers characterized the just-reported third quarter as "probably the strongest quarter in our history," thanks to record revenues and a strategy that is "hitting on all cylinders." Sales jumped 27% year over year to $10.4 billion while GAAP earnings soared 61% to $0.37 per share. Keep in mind that the third quarter included an extra week this year, adding about 8% to every figure due to calendar shifts rather than business improvements.

But things could have been so different. I'm not convinced that Cisco is doing all that much better than direct competitors Juniper Networks (NYSE: JNPR  ) and Brocade Communications Systems (Nasdaq: BRCD  ) , both of whom are keeping up with -- or exceeding -- Cisco's organic growth. Simply put, these are salad days for networking businesses and Cisco should have been springboarding off that trend to increase its already-hulking stature in the sector. But instead, and despite a torrent of bolt-on acquisitions, Cisco is barely keeping up with the Joneses.

And I blame that fateful decision to step on the callused toes of some of Cisco's strongest partners. IBM and HP have been instrumental to Cisco's sales and distribution efforts, but now that the companies are head-to-head competitors, you can't really expect the other big boys to put their back into that effort anymore. They are doing the opposite, in fact.  In a parallel universe where Homer never sat on a fish and Cisco stayed out of the server market, Cisco's sales would have Chambers reaching for his thesaurus to describe it.

Oh, well. Like Homer can't un-sit on his fish, Chambers can't undo the server move now. A year into the Unified Computing server business, that project hardly rated a mention in earnings release nor conference call. The negative impact is already clear as day. I wish Cisco all luck in turning that equation around, but the company has lost one of its finest competitive advantages in return for ... nothing much.

Do you agree with Anders' grim assessment of Cisco's server strategy? Maybe you think it's the best idea since sliced beets? Voice your opinion in the comments below, either way.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On May 17, 2010, at 3:41 PM, collector2002 wrote:

    Cisco didn't rock because there were more traders than real investors. The bogus analysts mis-interpreting and over-interpreting earnings and conference calls mislead investors. Cisco $39.1 Billion Cash On Hand with excellent Balance sheets is the real analysis. The mouth can say anything but the balance sheets speak the truth. Apple, Microsoft, and Cisco combines for $120.5 Billion in Cash on hand. All three companies earnings is OutStanding, and Balance Sheets are "Super". The three are trading at Flea Market Prices and greatly undervalued! Apple $275-$300 stock trading for under $250, Cisco $33- $37 strading for under $25, Microsoft is a $38-$40 stock trading for under $29. All companies are ranked a "Buy". Investors are either sleeping,broke, or mis-informed!

  • Report this Comment On May 18, 2010, at 1:04 AM, collector2002 wrote:

    MSFT DIVIDEND: GET ONBOARD BY MAY 18TH 2010 OR BE ON RECORD AS A SHAREHOLDER BY MAY 20TH 2010: FOR EVERY 1 MILLION SHARES = $130K DIVIDEND PAYMENT IN JUNE GUARANTEED:

    Microsoft Corp. today announced that its board of directors declared a quarterly dividend of $0.13 per share. The dividend is payable June 10, 2010 to shareholders of record on May 20, 2010. The ex-dividend date will be May 18, 2010.

    http://www.microsoft.com/presspass/press...

  • Report this Comment On May 18, 2010, at 1:05 AM, collector2002 wrote:

    REAL INVESTORS NEED TO STEP UP! TRADERS TURNING WALL STREET INTO A CASINO! NOT GOOD A LOOK!

    REAL INVESTORS ARE SEEING GREAT COMPANIES WITH EXCELLENT BALANCE SHEETS TRADING ROCK BOTTOM AND WAY BELOW FAIR VALUE.THE FUNDAMENTALS ARE POINTING TO THE GIANT TECHS BEING STRONG BUYS. RECORD CASH ON HAND, REVENUE AND PROFITS SHOWS THE COMPANIES ARE STRONG AND SOUND ENOUGH TO WITHSTAND ANY STORM. IT'S BUY TIME FOR GREAT COMPANIES. WE CAN'T GIVE THE TRADERS THE OPPORTUNITY TO BOUNCE AROUND STOCK TO STOCK BASED ON NON-SENSE AND FOOOLISH BETS TO PROFIT ON THE DOWNTURN. IF THEY DO WANT TO PLAY THAT GAME, THEY WILL HAVE TO PAY A HEFTY PRICE TO GET THOSE SHARES. TRADERS PRAY ON THE CONFUSION AND NEGATIVITY OF THE MARKETS. LET THE TRADERS TELL IT WE ARE STILL IN 2008. THE GLOBAL ECONOMY IS BOUNCING BACK STRONG. EVEN EUROPE SHOWING SIGNS OF GROWTH DEPSITE THE NEGATIVE MEDIA PRESS. THE MARKETS ARE STILL GREATLY UNDER-VALUED BECAUSE WE WERE ONCE ON TOP OF THE MOUNTAIN, THE RECESSION BUT US BACK AT THE BOTTOM OF THE MOUNTAIN. THEREFORE AT THIS POINT, WE ARE ONLY A QUARTER OF THE WAY CLIMBING BACK UP THAT MOUNTAIN. WITH THE MAJOR BANKS BACK ON TRACK, GLOBAL ECONOMIES ARE GROWING, WE ARE ON TRACK. THE WORST IS OVER. TIME TO ACCUMULATE THESE GREAT COMPANIES.

    TRADERS LIKE TO PLAY DIVIDE AND CONQUER. IN REALITY ALL THE TECHS ARE CONNECTED AT THE HIP. ALL THE GIANT TECHS ARE NEEDED TO MEET THE CHALLENGES OF THE FUTURE. IT'S GREAT TO SEE COMPANIES STAY IN THEIR LANE AND CONTINUE TO PRODUCE RECORD REVENUE AND PROFITS.

  • Report this Comment On May 18, 2010, at 1:09 AM, collector2002 wrote:

    Euro Won’t Be Choked by Austerity Drive, EU Says (Update1)

    European finance ministers said Greece’s debt crisis won’t unleash a continent-wide austerity drive with the potential to tip the economy back into a recession and further undercut the euro.

    http://www.businessweek.com/news/2010-05...

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