Cisco Stock Pitch Essay

Cisco Stock Pitch Essay Cisco Stock Pitch Essay ISBE Principle Investments Group Cisco Systems Investment Research Presentation Nan Lin Introduction: ï  ® Cisco is worldwide leader in datanetworking equipment and software ï  ® ï  ® Current Revenue: $39.5 billion Data-networking: linking of computing devices together with hardware and software, allowing data communications ï  ® Allows you to share files with friends and family Business Model: ï  ® ï  ® ï  ® ï  ® Routers (24% of total revenue) Switches (40% of total revenue) Advanced Technologies (29% of total revenue) Services (6%) Cisco’s Major Customers ï  ® ï  ® ï  ® Large Enterprises, contributing to estimated 45-50% of firm’s total revenues Service Providers: customers that provide data, voice, or video communications, (25%) Commercial Customers: medium/small companies (25%) Routers ï  ® ï  ® ï  ® Core Routers: communication within network Edge Routers: communication within various local networks Enterprise Routers: sold to corporate consumers through large volume agreements, of which Cisco has 60% market share Switches, Advanced Technologies, and Services ï  ® Switches ï  ® Advanced Technologies ï  ® ï  ® Used to build networks over areas such as college campuses, to metropolitan, cities ï  ® Home networking, Wireless, Security, Storage Networking, Optical Networking ï  ® Advanced Services, Focused Technical Support and Network Optimization Support Services Investment Thesis ï  ® Potential for Revenue Growth ï  ® Top Competitor in Network & Communications Industry Potential for Revenue Growth ï  ® When investigating its potential for revenue growth, we examine the following: ï  ® ï  ® Recent Macro trends Industry analysis Macro Trends ï  ® Growth from the YouTube Effect ï  ® ï  ® Carriers spend massive amounts to upgrade their networks, spending benefited Cisco- largest manufacturer of routers Internet growth up to year 2012 increase as much as 46% per year Macro Trends II ï  ® Convergence Trend: demand for more sophisticated technologies ï  ® ï  ® ï  ® Companies makes products such as internet video cameras, media adapters Use of these products requires more routers and switchers- which Cisco provides Growing Advanced Technologies Macro Trend III: ï  ® Domestic vs International Growth: ï  ® ï  ® Cisco derives over half of sales within US and 21% from Europe Cisco has opportunities in Asia: ï  ® ï  ® ï  ® China: rapidly expanding economy~5% of revenue China censorship requires more demand for Cisco’s products Japan: large market~3.4% of revenue Industry Analysis: ï  ® Barriers to Entry: ï  ® High Research & Development Costs ï  ® ï  ® Cisco spends more on R & D than its competitors, allows firm to drive innovation of new products in technology industries Threats: ï  ® Firewall policies Competitive Analysis ï  ® One of the highest gross operating margin due to size and scale ï  ® ï  ® Allows Cisco to pay off fixed payments such as interest in debt. One of the lowest operating costs of its competitors ï  ® Cisco maintains cost levels around 35% of total sales while other companies costs up to half of their total revenues Competitive Analysis II ï  ® ï  ® ï  ® Cisco leads the market in routers, accounting for approximately 60% of sales Cisco generates about 42% of revenue from switches and leads the industry with about 70% market share Cisco’s huge size allows contracts with multiple suppliers. Cisco’s Top Competitors: Revenu COGS e (M) Cisco Gross R&D Margin expend % iture (M) $34.81 $14.0 B Juniper $3.6 B $1.2 Networ ks 65.8% $5 65.7% $.7 Alatel- 32.85% 2.80 16.9 3.10 Important Business Metrics CSCO ALU JNPR Industr y Market 132.14 7.68 B 13.11 B 257.38 Cap B M Revenu 34.81 B 16.9 m 3.30B 165.93 e lbs. M Gross 65.8% 65.7% 32.85% 41.7% Margin EBITDA 8.73 B N/A 666.60 15.08M M Important SEC Filing Info ï  ® Balance Sheet: ï  ® Cisco has strong cash balance of $34.08 B ï  ® Cisco has significant cash to develop its growth through M & A. ï  ® ï  ® In the past, Cisco bought Tandberg, ScanSafe Inc to maintain high growth rates. On January 7, 2010, Cisco announces plan to acquire