Updated from July 6 Cisco ( CSCO) was rallying ahead of the bell Wednesday after posting stronger-than-expected fourth-quarter earnings, expanding its stock-buyback plan and making modestly optimistic first-quarter forecasts. But the company also held the line on stock options, saying it won't join corporate America's rush to list them as a regular expense, and suffered a setback as its well-regarded financial chief took a step toward retirement. Still, many investors clearly feel the selloff in the company's stock -- it's off 30% since last quarter's postearnings rally -- has been overdone and is just waiting to be reversed. The company saw its revenue estimates trimmed but its profit forecasts raised by most of the Wall Street analyst community Wednesday morning. The shares were up 93 cents, or 7.7%, to $13 in Instinet premarket trading.
Answering the oft-asked question of how it will use its huge cash hoard, Cisco rolled out a plan to boost its stock buyback to $8 billion from $3 billion. The company said it has actually bought $2 billion worth of its stock since it approved the plan last fall. Even so, Cisco shares have plunged more than 80% from their 2000 peak amid weak spending by its cash-strapped telco and Net customers. Chambers stressed to analysts on the call that the $5 billion boost in share buybacks was intended to send a "very clear message to support the stock" and offset the dilution due to future employee stock option exercises. Many observers have been concerned about the potential impact the expensing of employee stock options could have on the company's earnings. Both Chambers and CFO Carter said they would continue to offer the calculations of the stock option expenses in the company's annual report, but did not expect to take any charges related to those estimated expenses. Chambers said he was in favor of the intent of stock option governance, but added that the current formulas are not accurate and that stock prices are too much of a moving target to offer a reasonable fixed charge. Cisco said it remains liquid and that it is improving its efficiency. Cash, cash equivalents and total investments hit $21.5 billion at fiscal year-end 2002. Cash flow from operations was $1.6 billion for the fourth quarter and $6.6 billion for the full fiscal year 2002, the company said. "We continued to focus on what we could control, and the results speak for themselves," CEO John Chambers said. "Our operational performance is on par with peak historical results, especially in the areas of gross margins and income as a percentage of revenue." The stock rose 71 cents during regular trading Tuesday to $12.07.