22 May 2008

CSCO: Financial Analysis through April 2008 (Update)

Cisco Systems, Inc. (CSCO), the proud plumber of the Internet, has a commanding position in the market for enterprise networking products and services, such as routers.

We previously posted an analysis of the company's preliminary results for the April 2008 quarter. Cisco subsequently submitted a more complete quarterly report in a 10-Q filed with the SEC. The additional data in the 10-Q did not affect the gauge scores, we previously posted, as shown below.

The 10-Q includes much information about the company's operational performance and financial standing. We thought that the most interesting remarks concerned Nuova Systems, Inc., which developed technologies for enterprise data centers. Cisco first bought approximately 80 percent of Nuova, which included several former Cisco execs, in August 2006. In the first quarter of 2008, Cisco exercised an option to purchase the remaining 20 or so percent. The selling shareholders will receive up to three payments, to be made between fiscal years 2010 and 2012, with the amounts determined by an undisclosed formula that reflects the success of products developed by Nuova Systems.

Cisco originally indicated that the potential payout for the remaining interests in Nuova would be between $10 and $578 million. The latest 10-Q states that Cisco recorded a charge of $246 million for these payments and the amount could be adjusted as high as $678 million.

We didn't see an explanation for the $100 million difference between the two upper figures. We're also unclear why Cisco considers the purchase price to be a compensation expense.

1 comment:

  1. Hi,
    I want to provide you with information regarding Cisco Systems, and its possible financial misstatements. The U.S. Securities and Exchange Commission (SEC) is investigating this case (SEC File HO1282826).

    I would be careful with further investments, completly independent from their FY results.