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Cisco Systems (NASDAQ:CSCO) had a rough 2011. In the first half of the year, Cisco seemed lost; the stock price was cratering, weak forecasts had become the norm for every quarterly report, and some investors began calling for CEO John Chambers' head. While the situation seemed to improve in the second half of the year, the stock is still down 10% for the full year. However, now that Cisco seems to be fixing its problems, the stock is a good value play in both the short-term and long-term.

To be sure, Cisco has had its problems, chiefly related to macroeconomic weakness and rising competition from competitors like HP (NYSE:HPQ), Juniper (NYSE:JNPR), and F5 Networks (NASDAQ:FFIV). Cisco has always prided itself on offering top-of-the-line products and has been able to command a significant revenue premium. However, given the weak economy, some IT departments were undoubtedly forced to tighten budgets and therefore traded down to HP or Juniper switches and routers.

In the long term, overall demand for networking equipment will be strong, because the internet is not going away. Governments and corporations will need new networking products in greater quantities than ever before as the amount of data sent over the internet increases. The real question, then, is to what extent Cisco's disappointing numbers were the result of deferred purchases versus sustained market share loss. If "good-enough" networking were to become an accepted standard, Cisco would have to compete more aggressively on price, thus sacrificing its historically high gross margins. On the other hand, if recent weakness has been caused by deferred demand, then we should see a sharp improvement when the economy starts growing again (which will happen eventually).

At this point, I think it is fair to say that while Cisco has lost some market share to its competitors, this share loss has been fairly modest, and Cisco will remain the go-to choice for most of its customers. The main cause of Cisco's earlier underperformance was deferred demand. Increasing evidence for this proposition has turned up over the past few months. For example, HP networking revenue was up only 5% year over year last quarter, whereas in the quarter ending in January 2011, HP saw sales increases of more than 30% in routing and switching. Similarly, Juniper had a strong first half before disappointing investors with its performance and outlook in Q3 and Q4.

Cisco's performance has stabilized in recent quarters and the company has implemented a reorganization and cost-cutting plan that seems successful thus far. Cisco has net cash (cash plus short term investments minus long term debt) of $28 billion, or $4.50 per share. Removing $4.50 from the current share price around $18 implies a forward P/E ratio below 8 based on current estimates for $1.77 in earnings this fiscal year. Given that Cisco appears to be turning the corner, this seems like a very good price. At these levels, Cisco is a definite long candidate.

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