Boring Portfolio

Telecom Revolution
Monday, June 15, 1998
by Greg Markus
(TMF Boring)

ANN ARBOR, Mich. (June 15, 1998) -- The Land of the Rising Sun has become the Land of the Falling Yen as the Japanese currency hit an eight-year low against the dollar Monday. World equity markets reacted by moving sharply lower, with the Dow dropping more than 207 points (2.34%), the S&P 500 tumbling just under 2%, and the Nasdaq losing 1.68%.

Losses in the Boring Portfolio were held to a comparatively modest 0.42%, thanks to a $1 3/16 gain in shares of Borders Group (NYSE: BGP) to $34 1/8 and a $5/8 advance in shares of -- huzzah! -- our sleepy lodging REIT, FelCor Suite Hotels (NYSE: FCH), to $32 5/8. As noted here Friday, Borders officially joined the S&P Midcap Index at the close of trading today.

The announcement this morning that Northern Telecom (NYSE: NT) will acquire Bay Networks (NYSE: BAY) for $7.3 billion in stock presumably puts to rest efforts by Cisco Systems (Nasdaq: CSCO) CEO John Chambers to form a strategic alliance with Nortel. Similar efforts by Cisco to partner with telecom equipment giant Lucent (NYSE: LU) also came to naught.

Meantime, optical communications leader Tellabs (Nasdaq: TLAB) struck what looks to all appearances to be a match made in heaven when it agreed on June 3 to buy Ciena (Nasdaq: CIEN) for $6.9 billion.

So where does all this merging and acquiring leave The Kid, who when last we checked still wanted to strike a deal that would enable it and a yet-to-be-determined domestic partner to offer end-to-end data/voice/video solutions to major telecommunications providers?

Dunno. But let me take a stab at an answer.

In the short run, Cisco may be able to leverage domestically its existing strategic relationships with Japan's NEC (Nasdaq: NIPNY) and French-based Alcatel Alsthom (NYSE: ALA). After all, both NEC and Alcatel sell plenty of stuff in the US of A.

Also, it's not as if Cisco is all dressed up with no place to go. The Kid's existing relationships with US WEST (NYSE: USW) and Sprint (NYSE: FON) are significant, both symbolically and financially.

Longer term, though, some analysts are speculating that now that Lucent and Nortel are both off the table as potential partners, the Titan of Tasman Drive may opt for the route it took to vault itself into the leadership position in WAN switching -- namely, a Stratacom-sized acquisition. The new Tellabs-Ciena combo has been explicitly mentioned in that regard.

This is all pure speculation, of course. One thing's pretty certain, though: neither Lucent nor anyone else is going to sneak up in the night and run off with an unwilling Cisco. The Kid's board of directors last week instituted a "poison-pill" provision that makes a hostile takeover all but impossible.

Another thing you can bank on is that Cisco will continue to develop and market high-end gear for to advance the revolution in communications integration.

Just today, for example, Cisco introduced the Catalyst 8510 and 8540 Multiservice ATM switch router (MSR) series. These new multiservice devices enable corporate and regional customers to scale their communications backbones for voice, video, and data communications whether they are using ATM, Ethernet, or a mixture of both.

Excuse me a minute. Phone's ringing....

Would you believe this? That was my local cable company on the line. Apparently, they're coming down my street hooking up folks with new cable modems, and they want to know if I'm interested.

Looks like the revolution has come to my neighborhood.

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

Stock  Change    Bid 
 ANDW  -1       19.00 
 CGO   -  15/16 33.13 
 BGP   +1 3/16  34.13 
 CSL   -1 7/16  44.31 
 CSCO  -  13/16 78.25 
 FCH   +  5/8   32.63 
 PNR   -1 3/8   39.63 
 TBY   +  1/16  8.31 
                   Day   Month    Year  History 
         BORING   -0.42%  -2.09%  -0.91%  24.69% 
         S&P:     -1.99%  -1.27%  10.98%  73.26% 
         NASDAQ:  -1.67%  -3.55%   9.26%  64.82% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     34.13   203.17% 
   6/26/96  150 Cisco Syst    35.93     78.25   117.76% 
   8/13/96  200 Carlisle C    26.32     44.31    68.33% 
    3/5/97  150 Atlas Air     23.06     33.13    43.66% 
   4/14/98  100 Pentair       43.74     39.63    -9.41% 
   11/6/97  200 FelCor Sui    37.59     32.63   -13.21% 
   5/20/98  400 TCBY Enter    10.05      8.31   -17.25% 
   1/21/98  200 Andrew Cor    26.09     19.00   -27.18% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13650.00  $9147.51 
   6/26/96  150 Cisco Syst  5389.99  11737.50  $6347.51 
   8/13/96  200 Carlisle C  5264.99   8862.50  $3597.51 
    3/5/97  150 Atlas Air   3458.74   4968.75  $1510.01 
   4/14/98  100 Pentair     4374.25   3962.50  -$411.75 
   5/20/98  400 TCBY Enter  4018.00   3325.00  -$693.00 
   11/6/97  200 FelCor Sui  7518.00   6525.00  -$993.00 
   1/21/98  200 Andrew Cor  5218.00   3800.00 -$1418.00 
                              CASH   $5511.82 
                             TOTAL  $62343.07