Cisco sees Dell as a rival

The networking giant names Dell as a competitor for the first time in its annual report. Plus it certifies its financial results and details them as if it expensed stock options.

Cisco Systems on Wednesday officially named Dell Computer as a competitor and certified its financial results.

In its annual report filed with the Securities and Exchange Commission, the networking giant also listed the likes of Juniper Networks, Ciena and Lucent Technologies as key competitors. Dell, named in this latest report, wasn't listed as a rival in Cisco's 2001 annual report.

Earlier this month, Cisco told Dell it would the company as a distributor for its networking equipment. Dell introduced networking gear last September and has regularly its product lineup. Dell moved onto Cisco's turf in June with enterprise-class switches.

Dell, which has made a habit of entering new markets, was also by Hewlett-Packard as a distributor for its printers in July.

Cisco didn't mention Dell again in its annual report or explain why it dropped the PC maker as a partner. Cisco declined to comment on the move when it made the announcement of the relationship change earlier this month.

Meanwhile, Cisco CEO John Chambers and CFO Larry Carter certified the company's financial results in accordance with SEC rules. Cisco's auditor, PricewaterhouseCoopers, also gave the company a clean bill of health.

Analysts said they were relieved that there were no unpleasant surprises in the Cisco annual report and stuck to their respective opinions about the company's prospects.

Among other notable tidbits in the Cisco report:

• Cisco said its backlog of orders, a key indicator of future demand, was $1.4 billion as of Sept. 9 compared with $2.03 billion a year ago. The company said its backlog statistics only include creditworthy customers with a purchase order for products to be shipped within 90 days. Analysts were mixed on the backlog statistics.

Merrill Lynch analyst Sam Wilson said in a report that the drop in backlog wasn't "surprising given the current market environment."

Salomon Smith Barney analyst Alex Henderson disagreed, noting "decline in backlog highlights our recent concerns on Cisco." Henderson said Cisco has been using its backlog to maintain its revenue base.

In its filing, Cisco said: "A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net sales and operating results."

• The company detailed its results as if it had expensed stock options. If Cisco expensed stock options, its net income for the year would have been $373 million, compared with its reported net income of $1.89 billion. The bulk of Cisco employees have stock option strike prices averaging between $7.43 to $34.09.

• Cisco?s spent $3.4 billion on research and development in 2002, down from $3.9 billion, but up from $2.7 billion in 2000.

• As of July 27, Cisco had about 36,000 employees, including 6,000 in manufacturing and service; 13,000 in engineering; 14,000 in sales and marketing; and 3,000 in finance and administration.