Cisco financial analysis

Résumé du document

The computer network industry had undergone an economic slowdown of 4% in 2002/2003, after two years of sustained growth with two figures. Moreover, many computer network suppliers outsource their production to reduce their cost. As a consequence there were mass redundancies in Alcatel, Cisco and particularly in Lucent Technologies which divided its workforce by two in three years (50000 redundancies).

Extraits

[...] Cisco: Financial Analysis Cisco Systems Inc Part Presentation “Cisco Systems Inc. manufactures and sells networking and communication products, and provides services associated with those equipments and their use. Its products are installed at corporations, public institutions and telecommunication companies, and are also found in small and medium-sized commercial enterprises.” (www.Reuters.com) The company was created in 1984, by some researchers of Stanford University. The following figures present sales repartition according to products categories: Switches Cisco offers switches such as LAN, WAN . [...]

[...] This can be explained by a cost cutting policy. Indeed the COGS represented of the operating revenue in 2002 and it only represents of it in 2003. As we analyse the figures from 1995 to 2002, we see that Cisco's gross margin growth used to be due to the strong growth of the market. Nowadays, as the market is stagnating, Cisco is increasing its gross margin by decreasing its COGS. We can also say that Cisco has a good position in terms of gross margin when compared to its competitors which, as Nortel Networks, can reach a ratio of COGS in the operating revenue of 72%. [...]

[...] The other Cisco's main competitors are Lucent Technologies, Nortel Networks and Alcatel. However, Cisco keeps a leading position in the switch and router market, with a monopoly in many networks. Consequently Cisco is a profitable company with low risks and 90% of its turnover is realized in the triad area. Nevertheless, we forecast a stagnating market for Cisco despite the recovery of American growth in 2003-2004. Moreover, Cisco wanted to improve its market shares in Asia and particularly in China, but growth forecasts are less optimistic because many local computer network suppliers improve their technology to acquire market shares of the major companies. [...]

[...] It explains how many dollars generated by the company virtually belongs to each share in the market. The Earning per Share of Cisco Systems doubled between 2002 and 2003. This is due to first an increase of the net income as we saw previously but it is also due to a financial engineering trick used by the company. This financial engineering trick is the Buy Back Policy. Cisco Systems used its high level of cash to buy back a huge amount of its own shares in the stock market. [...]

[...] The structure of the ownership: The Company has a widespread ownership. We can distinguish three types of shareholders; the less important are the founders who have about of the shares, the Institutional & Mutual Fund Owners who hold 61% and finally the anonymous owners who hold the rest. The most important shareholders are the Barclays Bank ( 3.66 State Street Corporation ( 2.97 FMR Corporation ( 2.21 Vanguard Group ( 1.94 and AXA Financial ( 1.75 Morgridge John, the CEO, owns of the stock. [...]