Boring Portfolio

Cisco Reports
Tuesday, May 05, 1998
By Greg Markus (TMF Boring)

ANN ARBOR, Mich. (May 5, 1998) -- Tuesday was a busy day for the Boring Portfolio amidst a somewhat sloppy trading session.

After the close of trading on Monday, FelCor Suite Hotels (NYSE: FCH) reported that it has closed on the purchase of eight all-suite hotels it previously agreed to purchase from Starwood Hotels & Resorts (NYSE: HOT). The $245 million all-cash deal includes five Embassy Suites hotels and three Doubletree Guest Suites hotels comprising 1,898 suites. Two of the Embassy suites are in the Phoenix/Tempe area; the other three are located in Atlanta (near Hartsfield), in downtown St. Louis, and in Palm Desert, CA. The three Doubletrees are located in Ft. Lauderdale, Lexington, KY, and Dallas-Ft. Worth airport.

Today, FelCor announced it is acquiring the 301-room Meadowlands Hilton in Secaucus, NJ, for approximately $23.4 million in cash. Regardless, the stock closed off $5/16 to $35 3/16.

Atlas Air (NYSE: CGO) announced that the company was awarded the Cargo Airline Award for Excellence by The International Air Cargo Association (TIACA) for the second consecutive time. The ceremony took place yesterday in Paris. Mr. Market marked the occasion by trimming Atlas' share price by two bits to $37 7/8.

Shares of Borders Group (NYSE: BGP) rebounded by $1 1/8 to $32 13/16 ahead of the launch of later this week.

Reuters reported that Swedish telecom giant Ericsson (Nasdaq: ERICY) had signed contracts worth more than $524 million to build or expand GSM (Global System for Mobile) networks in China this year. This news comes one day after an announcement that Ericsson had secured a $300 million contract to expand the GSM network in Turkey.

I mention this because Ericsson has historically been a significant customer for Borefolio holding Andrew Corp. (Nasdaq: ANDW). I called Andrew for a comment on the Ericsson news. A spokesperson for Andrew replied that the company doesn't comment regarding specific customers, but she confirmed that Andrew is seeing opportunities associated with projects in China and elsewhere.

Now to the main event: Cisco Systems (Nasdaq: CSCO) released its fiscal third-quarter results after the closing bell. The press release is available at Cisco's Website.

Sales increased 33% over the year-ago period to $2.18 billion, and earnings per share increased 29% to $0.45, excluding one-time charges associated with acquisitions that occurred during the quarter. The EPS number beat the Street's consensus forecast by a penny, according to First Call.

The follow-up conference call is well into its second hour as I write this. I don't think it would serve anyone's interests for me to offer an instant analysis of the call even as it is occurring, but there are a few facts are worth noting. Gross margin increased to 65.7% versus 65.4% in the second quarter and 65.3% a year ago. Orders were characterized as being reasonably linear during the quarter, and the book-to-bill was greater than 1.0. Accounts receivable were under control, with Days' Sales Outstanding (DSO) declining from 57 days in Q2 to 53 days in Q3.

Geographically, Cisco continues to see Asia as "challenging," and expects the region to get worse before it gets better. China is the notable exception there. Elsewhere, the European market is picking up, and North America remains strong. Interestingly, the geographic mix of revenues actually showed a modest uptick internationally: the Americas accounted for 60% of total revenues in Q3, as compared with 62% in the preceding quarter; EMEA (Europe, Middle East and Africa) was 29% of revenues versus 28% in Q2; and Asia accounted for 11% of revenues, as compared with 10% in Q2.

Cisco used a portion the teleconference to focus on its recently announced Layer-3 gigabit ethernet products, and to discuss the company's strategic push into the integration of voice, video, and data. CEO John Chambers offered the perhaps provocative comment that the cost of voice communication could drop to near zero as the integration occurs and as voice becomes an increasingly smaller fraction of total network traffic. Should that scenario play out as Chambers projects, service providers will soon find themselves in a situation where they must fundamentally reorient their businesses toward multimedia communications.

As for guidance, Chambers basically reiterated the theme that the company intends to grow revenues at or above the industry growth rate, which pundits forecast as 30-50% -- although he emphasized that this could vary from region to region depending on macroeconomic conditions.

That's it for now. We'll be providing a full summary of the conference call soon.

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

Stock  Change    Bid 
 ANDW  -  3/4   22.00 
 CGO   -  1/4   37.88 
 BGP   +1 1/8   32.81 
 CSL   +  1/16  50.63 
 CSCO  -1 7/16  73.50 
 FCH   -  5/16  35.19 
 PNR   -  15/16 41.69 
                   Day   Month    Year  History 
         BORING   -0.15%   0.15%   3.33%  30.02% 
         S&P:     -0.57%   0.35%  14.96%  79.47% 
         NASDAQ:  -0.65%  -0.19%  18.76%  79.15% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     32.81   191.51% 
   6/26/96  150 Cisco Syst    35.93     73.50   104.55% 
   8/13/96  200 Carlisle C    26.32     50.63    92.31% 
    3/5/97  150 Atlas Air     23.06     37.88    64.26% 
   4/14/98  100 Pentair       43.74     41.69    -4.70% 
   11/6/97  200 FelCor Sui    37.59     35.19    -6.39% 
   1/21/98  200 Andrew Cor    26.09     22.00   -15.68% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13125.00  $8622.51 
   6/26/96  150 Cisco Syst  5389.99  11025.00  $5635.01 
   8/13/96  200 Carlisle C  5264.99  10125.00  $4860.01 
    3/5/97  150 Atlas Air   3458.74   5681.25  $2222.51 
   4/14/98  100 Pentair     4374.25   4168.75  -$205.50 
   11/6/97  200 FelCor Sui  7518.00   7037.50  -$480.50 
   1/21/98  200 Andrew Cor  5218.00   4400.00  -$818.00 
                              CASH   $9447.76 
                             TOTAL  $65010.26