Its growth on the top and bottom lines is as reliable as it gets in the notoriously unreliable world of technology financials.
Its leadership team is as stable as it gets in the notoriously unstable world of technology execs.
Its equipment powers the Internet to a degree that no other company approaches, although some claim they do.
All worthy attributes, but (obviously there had to be a but, or else why am I here?) they don't really explain why Wall Street loves Cisco Systems (Nasdaq: CSCO).
No doubt you've already read or heard about the network equipment maker's latest earnings report. In case you haven't, just know this: Cisco kicked major tail.
Those results are reflected in today's stock action. CSCO rose as the most heavily traded U.S. stock. Cisco's volume this morning exceeded that of the next three most actives combined.
Severe reactions in one direction or another aren't uncommon after any company's earnings report. But why do people love Cisco almost all the time, and more than any almost other company?
Because the company doesn't just post raw numbers. Cisco also does the softer things right. You can't find a better archetype for the Ideal Corporation.
Yesterday's fourth quarter conference call could be packaged as a clinic for How To Present Your Company. Among the topics illustrated in the nearly two hour session:
- How to Approach Acquisitions. Even casual observers of Cisco know the company has built itself by purchasing other companies. Every quarter, Cisco has a long shopping list, to the point where CEO John Chambers accidentally said "acquisition team" when he meant "executive team" at one point during the conference call. He corrected himself immediately, but the slip is telling.
But many people don't understand how Cisco shops.
"Lots of people don't get this in our industry," Chambers said. "We don't acquire competitors. We almost entirely focus on new markets with our acquisition moves, and occasionally where we might have mis-executed ourselves."
In other words, Cisco buys a lot, but it always buys in at ground level. Cisco probably has more contacts in the Silicon Valley venture capital community than any other networking company, and it uses those connections very heavily.
You see competitors merging or buying each other all the time in the tech industry. Necessity dictates it, but corporate life might be better if firms never had to get to that point.
I've heard at least one networking analyst question whether all those acquisitions have done anything in the last five years. But even if many don't pan out, it only takes a few big hits to justify the strategy; after all, Cisco's optical networking business has grown to more than $1 billion run rate from a standing start a year ago.
Cisco doesn't break out every tiny investment, obviously, but at least the company (unlike many tech firms such as Intel) reports pro forma numbers free of investment gains and losses. Which leads to...
- How to Delineate Your Results. The approach is simple in theory: go into as much detail as is legally permissible and competitively logical.
It's harder than it sounds, especially when you're expanding into new fields as rapidly as Cisco is trying to. Still, company executives spent 46 minutes yesterday afternoon going into the guts of the quarter's finances and operations, before the analyst Q&A. That figure doesn't include 13 minutes of summary and introduction.
Despite its myriad of acquisitions and investments, Cisco's accounting is always extremely clean, compared to most tech companies. It helps that Cisco is mostly a provider of hardware, which is easier to account for than software and services. Either way, by the time Cisco executives are finished with their formal statement, a listener has a very good idea of where the money is coming from and where it's going.
- How to Address Financial Concerns. Every conference call includes Chambers' tally of "wild cards" that could hurt business. He mentioned three potential worries this time: a tight components market; expenses and headcount rising faster than revenue; and the fact that the fourth quarter was "very unusual" -- meaning not necessarily sustainable -- in its balance of business across all product lines and geographic regions.
- How To Discuss Executive Turnover. The departure of Donald Listwin as Cisco's number two executive couldn't have been handled better. The company made sure Listwin was on the conference call so he could say goodbye in his own words. Hearing his voice articulating many kinds words for his former employer was far more reassuring than seeing a canned statement written by a public relations specialist.
Contrast that with the way Amazon.com (Nasdaq: AMZN) and Oracle (Nasdaq: ORCL) announced the losses of their seconds-in-command. Summing up executive departures with "personal reasons" only makes people suspicious of a problem, even when there isn't one.
A day after Amazon.com said Joseph Galli had resigned as president to become CEO of VerticalNet (Nasdaq: VERT), Galli said the shift was largely motivated by a desire to live on the East Coast. Why couldn't Amazon.com say that in the first place?
People don't need to know specific details of anyone's personal motivations, but investors deserve at least some explanation for why their company's president (or executive vice president or CFO or any top level manager) is leaving. And shareholders deserve to hear it from the executive in question.
Of course, high level departures often are related to some kind of corporate problem, or at least differences between executives. But that's a different case.
Only one other company matches (and maybe exceeds) Cisco in corporate presentation: Microsoft (Nasdaq: MSFT). You may resent the idea of an dominant monopoly on GUI operating systems. You might despise Microsoft's arrogance. Perhaps you just believe Microsoft makes bad software.
Fine, you're entitled to your opinions. They might even be justified, though they are and forever will be arguable.
But no one can reasonably dispute Microsoft's or Cisco's skill at playing to investors. They give shareholders the information they want in the manner they want it.
That's a major reason -- perhaps the major reason -- for those companies' dominance of their respective markets. Having Wall Street on your side opens many doors not only among fund managers, but also corporate customers.
Microsoft is beset by investor worries about the company's growth in an increasingly-satured core market. Oh, and there's that legal thing.
Fortunately -- and amazingly, when you think about it -- Cisco has managed to avoid antitrust troubles despite commanding nearly as much share of its market as Microsoft does in desktop operating systems and office apps. Cisco also can benefit from new, rapidly growing markets (optical, wireless and convergence) in ways that a software company like Microsoft simply can't.
And as long as Cisco thrives, you can count on the company to keep its results clear. Perhaps most tech firms will take note someday. 22GO
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