Cisco: You Can 'Bank' On It

Cisco's rosy outlook could be colored by its zero-rate financing effort.
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NEW YORK (

TheStreet

) -- When

Cisco

(CSCO) - Get Report

last took the stage in November,

CEO John Chambers predicted an uplift in business

. He didn't mention at the time that the company would offer to lend a hand in the form of zero-percent financing.

Taking a page from the automakers' playbook circa 2002, Cisco introduced three-year, interest-free financing for its small and mid-sized business customers last week. The cheap loans are sure to help juice sales to cash-strapped customers far and wide.

The move comes as Cisco is set to report fiscal second quarter results after the bell Wednesday. As networking rival

Juniper's

(JNPR) - Get Report

big blowout last week

indicated, gear sales are good. And Cisco's numbers are widely expected to be solid.

Cisco CEO John Chambers

But beyond last quarter's performance, investors are focused on the all-important outlook for Cisco, which could be a touch brighter if the favorable financing terms work their enticing magic in the form of new orders.

A Dash of Special Sauce

This so-called

vendor financing is a competitive tool -- sometimes called "special sauce" --

that large tech shops like Cisco,

Alcatel Lucent

(ALU)

and

Ericsson

(ERIC) - Get Report

use to win contracts without having to slash prices.

But while easy lending keeps the sales engine humming, there are risks to margins and exposure to deadbeats.

Cisco's total service financing, lease and loan activity increased by $421 million, or 20%, from July to October, according to the firm's most recent quarterly filing. While only a fraction of Cisco's $9 billion in quarterly revenue, the increase in financing comes at a time when sales growth remains stubbornly sluggish.

Not to be out done, networking and IT rival

Hewlett-Packard

(HPQ) - Get Report

introduced its own incentive program Monday that includes interest-free offers for its customers

. And according to analysts, Hewlett-Packard has also offered to throw in free service for some customers.

GMAC Throwback

Investors will recall how the big three U.S. automakers

GM

(MTLQQ)

,

Ford

(F) - Get Report

and

Chrysler

turned to their financing arms for help when they felt the competitive heat from

Toyota

(TM) - Get Report

and

Honda

(HMC) - Get Report

.

The push in no-interest loans helped pull sales out of a rut briefly, but overall, the effort only added to the companies' financial burden.

Cisco is certainly no Chrysler. But investors waiting for an update on the global business climate may want to factor out the artificial warming of Cisco's financing efforts.

-- Written by Scott Moritz in New York

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