Boring Portfolio

Boring Portfolio Report
Tuesday, February 3, 1998
by Greg Markus (

ANN ARBOR, Mich. (Feb. 3, 1998) -- The Boring portfolio declined nominally Tuesday, hurt slightly by a $15/16 loss in shares of Cisco Systems (Nasdaq: CSCO) ahead of its fiscal second quarter earnings report after the close of trading.

Cisco reported quarterly earnings of $0.43 per share, a penny ahead of the consensus estimate provided by First Call and at the top end of the range running from $0.40 to $0.43. This represented a 26% gain over last year's $0.34. Quarterly revenues totaled $2.02 billion, up 27%.

Cisco's 90-minute teleconference ended just a few minutes ago, and so this recap must be brief. I'll follow up later tonight with additional information, posting it in the Cisco folders at The Motley Fool's website and AOL location. We'll aim to provide a full summary in the morning.

All in all, I'd characterize the conference call as upbeat. Its primary focus was on the major opportunities presented by the integration of data, voice, and video networks.

Operating expenses declined sequentially from 32.9% of sales to 32.7%. On the balance sheet, cash increased by $448 million in the quarter to $4.0 billion... with a "b."

Inventory increased by $27 million to $268 million, but inventory turns increased sequentially from 10.5-times to 10.9-times. Cisco is thus increasing its inventory slightly to fulfill customer orders more quickly, but it's also turning that inventory over more rapidly.

Orders were linear throughout the quarter, with the exception of the holiday pause. Days sales outstanding was essentially flat at 57 days versus 56 days last in the preceding quarter.

Headcount increased by 796 to 12,075.

Geographically, the Americas continued strong, with the U.S. providing 55% of orders. The rest of the Americas brought in 7% of orders. Europe is strengthening, and provided 28% of orders (including Australia and New Zealand -- don't ask me why). Asia accounted for 10% of orders, down from 12% last quarter and the typical rate of 15%.

The Asian numbers are kind of "bad news-good news." The bad news is that orders are declining. The "good" news is that they are now such a small percent of the mix that there's not much lower they can go -- although Cisco cautioned that single-digit order flow could be seen in the next quarter or two from that part of the world.

Japan constitutes the majority of Asian orders, and the situation remains weak there. China is most of the balance, and growth there is very strong -- over 100% year-over-year.

To seize the moment with regard to data/voice/video, Cisco intends to ramp up hiring and research & development in the next couple of quarters. Operating expense is expected to move toward 34%. Cisco stressed that d/v/v integration was a tremendous opportunity, and they wanted to take advantage quickly.

Order growth was better than 30% in the quarter, and book-to-bill was in excess of 1.0. So despite the planned increase in operating expense, normal seasonal challenges in Q3, and continuing Asian financial problems (partially offset by strength elsewhere), I'd say that the situation looks good.

I'd characterize the company as upbeat and optimistic -- moderated by the typical Cisco "paranoia."

FoolWatch -- It's what's going on at the Fool today.

Stock  Change    Bid 
 ANDW  -  1/2   28.63 
 CGO     ---    22.75 
 BGP   +  5/16  32.69 
 CSL   +  3/8   45.31 
 CSCO  -  15/16 63.00 
 FCH   -  1/4  36.81 
                   Day   Month    Year  History 
         BORING   -0.15%  -2.61%  -2.61%  22.54% 
         S&P:     +0.47%   3.67%   3.67%  61.84% 
         NASDAQ:  +0.82%   6.11%   6.11%  60.08% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     32.69   190.39% 
   6/26/96  150 Cisco Syst    35.93     63.00    75.33% 
   8/13/96  200 Carlisle C    26.32     45.31    72.13% 
   1/21/98  200 Andrew Cor    26.09     28.63     9.72% 
    3/5/97  150 Atlas Air     23.06     22.75    -1.34% 
   11/6/97  200 FelCor Sui    37.59     36.81    -2.07% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13075.00  $8572.51 
   6/26/96  150 Cisco Syst  5389.99   9450.00  $4060.01 
   8/13/96  200 Carlisle C  5264.99   9062.50  $3797.51 
   1/21/98  200 Andrew Cor  5218.00   5725.00   $507.00 
    3/5/97  150 Atlas Air   3458.74   3412.50   -$46.24 
   11/6/97  200 FelCor Sui  7518.00   7362.50  -$155.50 
                              CASH  $13182.97 
                             TOTAL  $61270.47