ISBE Principle Investments
Group
Cisco Systems
Investment Research
Presentation
Nan Lin
Introduction:
Cisco is worldwide leader in datanetworking equipment and software
Current Revenue: $39.5 billion
Data-networking: linking of computing devices together with hardware and software, allowing data communications
Allows you to share files with friends and family Business Model:
Routers (24% of total revenue)
Switches (40% of total revenue)
Advanced Technologies (29% of total revenue)
Services (6%)
Cisco’s Major Customers
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
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
Switches
Advanced
Technologies
Used to build networks over areas such as college campuses, to metropolitan, cities
Home networking, Wireless,
Security, Storage
Networking, Optical
Networking
Advanced Services, Focused
Technical Support and
Network Optimization
Support
Services
Investment Thesis
Potential for Revenue Growth
Top Competitor in Network &
Communications Industry
Potential for Revenue
Growth
When investigating its potential for revenue growth, we examine the following:
Recent Macro trends
Industry analysis
Macro Trends
Growth from the YouTube Effect
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
Convergence Trend: demand for more sophisticated technologies
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:
Domestic vs International Growth:
Cisco derives over half of sales within
US and 21% from Europe
Cisco has opportunities in Asia:
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:
Barriers to Entry:
High Research & Development Costs
Cisco spends more on R & D than its competitors, allows firm to drive innovation of new products in technology industries Threats:
Firewall policies
Competitive Analysis
One of the highest gross operating margin due to size and scale
Allows Cisco to pay off fixed payments such as interest in debt.
One of the lowest operating costs of its competitors
Cisco maintains cost levels around 35% of total sales while other companies costs up to half of their total revenues
Competitive Analysis II
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
Balance Sheet:
Cisco has strong cash balance of
$34.08 B
Cisco has significant cash to develop its growth through M & A.
In the past, Cisco bought Tandberg, ScanSafe
Inc to maintain high growth rates.
On January 7, 2010, Cisco announces plan to
acquire
