Boring Portfolio

Cisco Delivers
... as market plunges
by Greg Markus
(TMF Boring)

ANN ARBOR, Mich. (Aug. 4, 1998) -- You already know what happened in the market today, so let's just skate past that and move directly to tonight's news.

After the close of trading Tuesday, Cisco Systems (Nasdaq: CSCO) reported net income of $0.48 per share, excluding "one-time" charges of $0.03 per share (after-tax) associated with the acquisition of Class Data Systems.

The EPS result was at the top end of the range of analysts' forecasts and, as has become customary, beat the consensus estimate by a penny. This represented a 30% gain over the $0.37 earned in the year-ago quarter. Quarterly revenues increased 35% to $2.39 billion.

The company also reported that its board has approved a three-for-two stock split, which is expected to be distributed in mid-September.

Gross margin in the quarter was unchanged sequentially at 65.7%. Research and development expense was 12.3% of sales, up slightly sequentially. General and administrative expense increased slightly to 3.2% of sales, due primarily to increased goodwill expense. Cisco's tax provision was unchanged at 35%. Going forward, Cisco expects its tax rate to decline to 33.5%.

Cisco management said that orders and shipments showed good linearity across the quarter. Days sales outstanding declined sequentially from 53 days to 50 days. Inventory turns decreased somewhat, from 10.4 days to 9.8.

Cisco added a net 1,200 employees during the quarter and intends to continue to add approximately the same number this quarter.

The bulk of Cisco's presentation on the conference call focused on the relative health of major geographical markets and Cisco's developments in the service provider market.

With regard to the former, bookings in the Americas and Europe continued to show good strength in Q4, while Asian bookings -- and especially Japan -- were "challenging." As a percent of orders, Asia declined from 11% in Q3 to 7% in Q4. China remains a significant exception to that trend in Asia, with year-over-year growth in excess of 80%.

Going forward, Cisco continues to target revenue growth at or above that of the overall industry average, which it says that analysts estimate to be 30-50% annually.

With regard to the service provider market, Cisco is pleased with the acceptance of its products and the interest in voice/video/data convergence. Cisco said that the company achieved market-share leadership in the dial access market. In the ATM space, Cisco expects that its introduction of key new products later this calendar year and in 1999 will enhance the company's position. The product line coming from Cisco's acquisition of StrataCom enjoyed year-over-year revenue growth in excess of 50%.

The Q&A session is continuing as I file this recap. Overall, CEO John Chambers and other Cisco execs on the call have indicated that they continue to see many opportunities and remain optimistic about the coming year -- tempered, as always, with Cisco's traditional "paranoia."

One bit of non-Cisco news: Borders Group (NYSE: BGP) will report its fiscal second quarter results on Wednesday, August 12, in the morning. A conference call will follow immediately thereafter. We'll be on the call.

Shares of Borders Group today fell ... well, never mind.

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


08/04/98 Close

Stock  Change    Bid 
 ANDW  -  11/16 16.75 
 CGO   -  7/8   35.75 
 BGP   -1 1/4   29.06 
 CSL   -2 1/2   40.94 
 CSCO  -3 5/16  93.13 
 FCH   -1 3/8   26.13 
 PNR   -1 3/8   37.88 
 TBY   -  1/4   7.75 
 
                   Day   Month    Year  History 
         BORING   -3.65%  -4.60%  -4.42%  20.27% 
         S&P:     -3.62%  -4.33%  10.48%  72.47% 
         NASDAQ:  -3.53%  -4.63%  13.71%  71.54% 
  
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  150 Cisco Syst    35.93     93.13   159.16% 
   2/28/96  400 Borders Gr    11.26     29.06   158.19% 
   8/13/96  200 Carlisle C    26.32     40.94    55.51% 
    3/5/97  150 Atlas Air     23.06     35.75    55.04% 
   4/14/98  100 Pentair       43.74     37.88   -13.41% 
   5/20/98  400 TCBY Enter    10.05      7.75   -22.85% 
   11/6/97  200 FelCor Sui    37.59     26.13   -30.50% 
   1/21/98  200 Andrew Cor    26.09     16.75   -35.80% 
  
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  150 Cisco Syst  5389.99  13968.75  $8578.76 
   2/28/96  400 Borders Gr  4502.49  11625.00  $7122.51 
   8/13/96  200 Carlisle C  5264.99   8187.50  $2922.51 
    3/5/97  150 Atlas Air   3458.74   5362.50  $1903.76 
   4/14/98  100 Pentair     4374.25   3787.50  -$586.75 
   5/20/98  400 TCBY Enter  4018.00   3100.00  -$918.00 
   1/21/98  200 Andrew Cor  5218.00   3350.00 -$1868.00 
   11/6/97  200 FelCor Sui  7518.00   5225.00 -$2293.00 
  
                              CASH   $5528.69 
                             TOTAL  $60134.94