The WAN Connection

Cisco Systems

The ten-thousand pound gorilla of the WAN equipment sector, Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> is a veritable General Electric of networking, shooting for a number one or two position in frame relay, ATM, and routers. Although the company has struggled in remote access concentrators, it is supposed to come to market soon with products rivaling the port density of products from U.S. Robotics and Ascend. Counting the inclusion of a router (which all access concentrators need on the back end), its product is supposed to be a price leader. With a virtual stranglehold on the $5 billion market for routers, Cisco isn't bothered by threats such as Ipsilon Network's IP switching solutions. Instead, Cisco will take a pragmatic approach to data flow control and software management if its "tag switching" approach to routing does not work.

With an equity market value of $50 billion, Cisco can also afford to make massive acquisitions with little dilution. In the past four years, this financial flexibility has allowed the company to become a top player in LAN switching equipment and will also allow the company to make whatever acquisitions necessary to have a stake in developing WAN trends.

The Financials

Cisco reported a 37% increase in fourth quarter revenues of $1.76 billion and operating EPS of $0.55, up 31% from operating EPS of $0.42 last year. While net margin fell, that gain in net income continued a virtually unbroken string of such per-share earnings increases. That sort of gain and repeated earnings increase explains why the company continues to be rewarded with one of the best multiples in the group, how it can attract and retain top personnel, and why it can continue to make so many low-cost stock-for-stock acquisitions.

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