Cisco Plays It Close to the Vest

Opening its three-day analyst conference in earnest, Cisco (CSCO) lived up to one promise Tuesday: CEO John Chambers did, in fact, steer clear of any detailed discussion of the current quarter.

While Chambers managed to provide another rundown on the company's breakaway strategy -- you know, the one in which Cisco trounces its weaker competitors by flexing its market share and boosting productivity -- he offered no insight into the health of the network gearmaker's customers, nor even any abstractions regarding equipment-ordering patterns.

Instead, he raised the bar once again on Cisco's efforts to get into new and faster-growing business. That left observers to muse about the ill winds still buffeting the information technology business and Cisco's premium valuation (after the 80% gain of the last two months, the stock trades at 27 times 2003 earnings estimates). Investors, hoping in vain for some good news to offset an AOL-led tech selloff, sent Cisco shares down 54 cents to close at $14.52.

Quieter

In the past, investors who tuned in to a Chambers presentation were typically rewarded with some intelligence -- however indirectly presented -- on the current climate in the computer networking and information technology market. This time around, though, some investors on hand reported that they found Chambers' presentation anticlimatic.

But then, that may be expected if you cram a ballroom with a few hundred money managers and analysts and give them no new scraps of information to digest or invest on. There was some grumbling in the lobby after Chambers' keynote speech, which was nearly identical to the message he gave investors last month at the UBS conference.

In the absence of new information, some filled the void with guesses of their own. "It sounded like they had nothing positive to say about demand," ventured one attendee. "If they did have something to say, you'd think they would have said it."

What Cisco may lack in financial details, it more than made up for in ambition. Chambers, who was targeting eight new growth markets last month, has now raised the bar, aiming for 12 new growth markets by year-end.

Growth markets are areas like network security and data storage where Cisco can hope to stimulate sales while its dominant business of selling Internet routers and computer switches matures. Chambers vowed that the company would continue to make acquisition in these growth areas or even form partnerships if need be.

White Knight

But Chambers made it clear that acquisitions would continue to be small-scale affairs. "We will not acquire a competitor," he said, once more dashing hopes that Cisco might some day play white knight to telecom gear titans like Lucent ( LU) and Nortel ( NT).

Given the prolonged tech spending recession, it's little wonder investors want some evidence that their faith in outfits like Cisco will be rewarded.

"There is very little disagreement about the present situation, and pretty solid consensus about 2003 being pretty weak, especially in the first half," says CIBC World Markets analyst Steve Kamman. "The only real question is whether current valuation can hold through next year."

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