I spoke to an old business partner yesterday who had spent the afternoon in a telecommunications switching facility in Northern Virginia. "Bill, you've got to understand, I walked past rack after rack of equipment, and it was all Cisco. There used to be alternatives, but now there's nothing."

Where three years ago we heard rumblings of Juniper (NASDAQ:JNPR) catching Cisco, taking away the top-end routing market, that threat has abated. Cisco (NASDAQ:CSCO), generally an impressive cash-generating machine, turned in first-quarter earnings that beat last year's by 87%, or $0.15 per share. Top-line revenues grew 5.3% over last year's. Cisco also bought back plenty of stock on the open market, spending $2 billion from its cash pile to retire more than 102 million shares at an average cost of $19.60.

It would appear -- though we can only take hints from diluted share counts -- that the share repurchases greatly exceeded the options Cisco issued in the past year, since the total number of diluted shares dropped by more than 200 million even though the stock price has increased by more than 70% over the same period. Cisco even seems to have avoided some of its sins of the past, with neither inventories nor accounts receivable showing much in the way of growth. Back in 2001, the company suddenly wrote down more than $2 billion in inventory, erasing several quarters' earnings.

Cisco trumpeted its gains in voice over the Internet technology, handsets, and network equipment. Good thing, too, because this is the area where technology shows the most promise for growth. Highlights include substantial growth in CallManager Express and Unity Express and some increased spending from some of its biggest clients, primarily telecommunications companies. CEO John Chambers warned that the outlook, while improved, is still "fragile."

It seems that Cisco investors missed that part. This is a company that trades at multiples that price in nothing short of a sustained, substantial rebound. All in all, Cisco turned in an impressive quarter and added some credence to the thesis that technology is rebounding. But I remain concerned that the company is margining its future to show better results now.

Technology companies have notoriously short product cycles and are, as such, dependent upon having their development channels predict and respond to competitive and consumer pressures. So when I see Cisco cut its research and development budget 6.8% from last year, I'd say that the company is taking a pretty good risk that it can keep ahead, or even keep up. Its 2002 R&D budget, for the record, was dramatically lower than where it was in 2001. They're cutting off product development efforts in a big way. Of course, as my colleague said, it really seems that there's no one else playing in Cisco's sandbox.

Cisco investors have to hope that telecommunications customers keep spending, that Cisco's development arm becomes even more efficient, and that the company makes sound acquisitions at good prices. With the stock pushing $23 per share and a $150 billion market cap, that's what they are hoping, whether they know it or not.