Cover Story
For Cisco, the bundling of voice, video and Internet service heralds the dawn of a new, more profitable age.
Getting the World Wired
by Bill Alpert
In recent years, Cisco Systems Chief Executive John Chambers has had trouble persuading investor that data-networking still is a growth business. The company's routers and other networking gear lia at the heart of the Internet and most of the world's large organizations. But does all that electronic plumbing ever need upgrading? After all, a notebook computer cracks when you drop it, but network switches rarely wear out. As 2006 began, Cisco's sales were rising by less than 10%. With its annual revenue around $30 billion, the San Jose, Calif based company needed to find new sources of growth, and in very large increments. Apparently, it has. At a meeting with Wall Street analysts last month, Cisco said that several markets look ripe enough to nourish its next growth spurt: oil-rich nations looking to wire their people; telephone and cable providers locked in an arms race for Internet gear; corporations bundling e-mail and voice messaging on their networks and a coming flood of Internet video traffic. Any one of those new markets could be worth $10 billion in annual sales to Cisco within five years.
Cisco CEO John Chambers says even he is surprised by the company's early suc cess in these new ventures. "We are win ning almost all the new jump balls," he says. "We ",ill become the leading com pany as the network enables all forms of communication."
In appreciation of these prospects, analysts have been raising their sales growth forecasts for Cisco from the low teens to 15% or more per year. As for profits-which totaled $6.8 billion, or $1.10
a share in the fiscal year ended July 2006- the Street sees $1.27 a share in fiscal i '07, and $1.47 in fiscal '08. Cisco, like most technology companies, reports earnings before option expenses.
Investors seem to have marked up their opinions of Cisco, as well. Since early Au gust, the company's shares (ticker: CSCO) have risen almost 40%, to a recent 23.90. Yet, at 18.8 times next year's estimated earnings, the stock sports a lower price/earnings multiple than most other networking shares. As sales and profits be gin to flow from new customers and new markets, like Internet video, Wall Street is likely to raise its stock-price targets. A number of analysts think the shares easily could tack on another 15%.
Cisco didn't invent the Internet, butfew other companies did - as much to help it come of age. In the 1990s, as the dot-com bubble was inflating, Cisco's sales in some years grew more than 50%. Revenue growth since has slackened to a comfort able low-to-mid-teens pace. Fiscal '06 sales rose 15%, bolstered by the February acqui-
Cisco CEO John Chambers says even he is surprised by the company's early suc cess in these new ventures. "We are win ning almost all the new jump balls," he says. "We ",ill become the leading com pany as the network enables all forms of communication."
In appreciation of these prospects, analysts have been raising their sales growth forecasts for Cisco from the low teens to 15% or more per year. As for profits-which totaled $6.8 billion, or $1.10
a share in the fiscal year ended July 2006- the Street sees $1.27 a share in fiscal i '07, and $1.47 in fiscal '08. Cisco, like most technology companies, reports earnings before option expenses.
Investors seem to have marked up their opinions of Cisco, as well. Since early Au gust, the company's shares (ticker: CSCO) have risen almost 40%, to a recent 23.90. Yet, at 18.8 times next year's estimated earnings, the stock sports a lower price/earnings multiple than most other networking shares. As sales and profits be gin to flow from new customers and new markets, like Internet video, Wall Street is likely to raise its stock-price targets. A number of analysts think the shares easily could tack on another 15%.
Cisco didn't invent the Internet, butfew other companies did - as much to help it come of age. In the 1990s, as the dot-com bubble was inflating, Cisco's sales in some years grew more than 50%. Revenue growth since has slackened to a comfort able low-to-mid-teens pace. Fiscal '06 sales rose 15%, bolstered by the February acqui-
