Cisco Systems Inc.CSCO

Morningstar Rating

Stock Research and Analysis

by Joseph Beaulieu

Significant scale advantages, daunting customer-switching costs, and a reputation as the "go-to" provider of enterprise-quality networking gear give Cisco Systems a wide economic moat, in our opinion. But the unbridled pursuit of growth could eventually erode the company's margins, returns on capital, and perhaps even its moat. Read more

Bulls Say

Cisco's long-term demand outlook remains solid as voice, video, and data networks converge toward IP.

Cisco's significant cash hoard and strong cash-flow generation provide ample ammunition to acquire new technology in high-growth product and customer segments.

Alcatel-Lucent and Nortel continue to flounder, which could provide Cisco the opportunity to gain incremental market share in routers and optical equipment. Read more

Bears Say

Cisco's pursuit of growth may come at the expense of shareholder returns. For example, the firm is now pursuing the highly-mature and competitive server market which offers only narrow profit margins.

China's Huawei Technologies has won some sizable contracts abroad and could hurt Cisco's volume and margins in key markets.

Juniper, Cisco's main rival in the carrier-router market, is now selling switches for use in corporate networks, and area which Cisco has long dominated. Read more

Strategy

Cisco aims to use its financial and technical strength to move beyond its core routing and switching business to provide corporations and consumers with end-to-end data networking products. The firm also aims to capture an increased share of telecom-carrier spending as carriers' voice and data networks converge. Read more

Management

Cisco has one of the deepest executive benches in the technology industry, and two thirds of management at or above the senior vice president level were employed by Cisco during the 2001 telecom collapse. Most top managers, including CEO John Chambers, have sales or manufacturing backgrounds. Read more

Profile

Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. Read more

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