So much for that slow pre-holiday news week. Tech companies went nuts Monday with all kinds of interesting tidbits. Here's a "shooting from the lip" crib sheet on the key items on the last 24 hours. Targets: Cisco, Cabletron, Micron Electronics and Red Hat.
Target: Cabletron (NYSE: CS).
This quote from almost-newly appointed CEO Piyush Patel kinda says it all.
"We continue to believe that the Cabletron share price understates the value contained within Cabletron," said Patel.
Hmmm. Usually when companies tell you they are undervalued there's a reason -- the stock is a dog. In Cabletron's case there's a reason -- the company has a history of missing estimates.
Patel, however, is turning things around and refocusing Cabletron's efforts. The company dished off its Flowpoint unit and beat First Call consensus on Monday. But the best thing about Patel is that he might be more amenable to a sale than his predecessor and that's all anyone cares about.
Patel needs to dress Cabletron up and sell it. If not he needs to deliver a few more upside surprises before boring us with the undervalued talk.
Target: Cisco Systems (Nasdaq: CSCO)
When you're one of the most highly valued companies in Silicon Valley, why bother worrying about price tags?
Cisco bought Cerent and Monterey Networks -- two companies with barely an products or revenue -- for more than $7 billion just a few months ago.
Well now it turns out Cisco doesn't blow money with reckless abandon. Its acquisition of Pirelli's networking unit for $2.15 billion rubbed analysts all the right ways.
For starters, Pirelli is a bargain and now Cisco is in the dense wave division multiplexing market and can hook up Cerent's and Monterey's hardware with Pirelli's pipes. And it was done relatively cheap. Cisco could have bought Ciena Corp. (Nasdaq: CIEN), but would have paid a lot more. And startups are more expensive than the existing players.
Interesting sidebar: Watch Ciena shares over the next few quarters if Cisco delivers on its promises on linking Pirelli with its other fiber optic acquisitions.
There are challenges: Pirelli is a fourth place player in its market and is based in Milan, Italy. Those facts will challenge Cisco management, but overall the deal looks pretty good.
Target: Micron Electronics (Nasdaq; MUEI)
The company delivered a first quarter upside surprise and talked up its e-business services strategy where Micron offers Web hosting and other services, but it's too early to call Micron a winner.
Margins had a nice increase to 26.4 percent from 17.1 percent a year ago, but sales were down to $353 million in the first quarter, compared to from $404 million a year ago. Micron also cited problems with component shortages for the sales dip.
Another point worth noting. Like last quarter, Micron's SpecTek business, which refurbishes memory, had a strong quarter. As we reported last quarter, SpecTek accounts for most of Micron's profits.
But at least Micron is trying with its new e-business approach. Unfortunately, Micron will remain the third place direct PC seller behind Dell (Nasdaq: DELL) and Gateway (NYSE: GTW) no matter what it does.
Target: Red Hat (Nasdaq: RHAT)
Is Red Hat the next Microsoft Corp. (Nasdaq: MSFT)? If the company's latest earnings miss is any indicator it's highly doubtful.
We'll cook it down for you. Microsoft has proprietary software that's the dominant operating system (big profits). Red Hat peddles free software and services (profits maybe someday). Microsoft wrote the investor relations handbook. Red Hat needs to read the first chapter on managing expectations.
Red Hat missed estimates by a penny with a third quarter loss of a nickel a share and its stock soared. You don't see that everyday and you may not see it again. But a miss is still a miss.
Investors shrugged off Red Hat's earnings miss to focus on a stock split, but managing Wall Street's expectations is one of the company's biggest jobs. Red Hat execs said they were focused on expansion so that's why they missed. Sounds downright Amazonian doesn't it?
Linux hype cut Red Hat some slack but what happens if it misses next quarter and doesn't have a stock split to save it? Red Hat will lose some market cap.
And about that sales growth.
The company reported sales of $5.4 million for the third quarter ended Nov. 30, a gain of 24 percent from the prior quarter. That's impressive, but it's still small potatoes.
Red Hat may be the Linux champ, but the stock is ahead of itself. If Red Hat doesn't manage expectations better shares could come back to earth quickly.