"Cisco remains the strongest, best-positioned company in the business."|
Cisco Systems Inc. Dow Jones Newswires -- February 3,
1999 Cisco - Back Away -2: Analysts See Co. In Strong Position
Cisco outlined several potential stumbling blocks facing the enterprise-networking business in 1999, analysts said.
To start, confirming fears that many Wall Street analysts have been voicing for some time, Cisco warned that some U.S. corporations are scaling back on capital spending as they feel the impact of economic pullbacks overseas.
At the same, Cisco noted that some corporate customers could shift resources away from networking spending to implement Year 2000 fixes in 1999, said Sanford Bernstein analyst Paul Sagawa.
Cisco said the enterprise networking market is also facing noticeable pricing pressure right now - especially in the local area networking, or LAN, switching business - as the company's competitors cut prices to attract sales. "Cisco said some of its competitors have been irrational" with pricing, said Lazard Freres' Duran.
Finally, Hambrecht & Quist analyst Farrokh Billimoria said Cisco struck a cautious note entering its third quarter because this is generally a slow time of the year for the networking industry.
Despite Cisco's cautious tone, Nutmeg Securities analyst Andy Schopick stressed that the issues highlighted by the company aren't new. "There's no new message here," he said.
The analyst added that Cisco typically strikes a cautious note when discussing its outlook. "They're always toning things down," Schopick said.
More important, analysts stressed that even if the networking industry overall is headed for a slowdown, Cisco remains the strongest, best-positioned company in the business. "There is no sign that Cisco is faltering," Schopick said.
Indeed, Cisco offered a very optimistic outlook for the carrier market and for its own role in that market. Deregulation and the emergence of new players like the competitive local exchange carriers, or CLECs, are driving robust growth in the carrier business, analysts say.
Phone companies ranging from AT&T Corp. (T) to the baby Bells to the CLECs, as well as Internet-service providers, are all spending heavily to build out data networks like the Internet and to develop the capacity to put voice traffic over them.
And Cisco intends to benefit from that spending as it expands its presence in the carrier market.
Sagawa believes this should contribute to an acceleration in growth for Cisco in the second half of 2000, even though the company could face a deceleration this year since the enterprise business may be facing a rocky road ahead.
For his part, Duran expects Cisco's revenue to grow at a rate of 25% to 30% annually over the next several years.
Commenting on why Cisco didn't announce a stock split, a company spokesman pointed out that Cisco recently split its shares - 3-for-2, effective in mid-September - and has split its stock seven times over the past eight years.
He added that Cisco will continue to monitor its share price, shares outstanding relative to its peers and the affordability of its shares for investors in considering splits.