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Cisco Systems, Inc. (CSCO)

  • Apr. 11, 2014, 3:05 AM
    • Cisco (CSCO) and Juniper Networks (JNPR) have found the "Heartbleed" encryption flaw in some of their products, including routers, switches, servers, and firewalls.
    • The ubiquitous nature of the products makes the bug harder to eliminate, and hackers may be able to steal sensitive data such as passwords and credit-card information as it travels across networks.
    • Cisco is investigating 65 products and has confirmed 16 as being vulnerable.
    • Juniper's VP of Corporate Communications, Michael Busselen, said the exposure for customers "is minimal," as the problem affected only one product. However, spokesman Corey Olfert warned that updating Juniper equipment could take a while. "It doesn't sound like a flip the switch sort of thing," said Olfert. "I don't know how quickly they can be resolved."
    • Meanwhile, Intel (INTC) was still working on a patch for its McAfee security products as of yesterday.
    • Vulnerable Cisco products.
  • Apr. 8, 2014, 10:46 AM
    • "We came away from industry interviews in recent weeks with the view that the market has less interest in the Cisco (CSCO +0.1%) product suite than in past transitions," writes Wunderlich's Matthew S. Robinson, downgrading to Hold. "We see the range of alternatives for network automation/software defined networking (SDN), network function virtualization (NFV), and cloud services as dilutive to the Cisco installed base upgrade opportunity."
    • Robinson also argues there's "more opportunity" in small cap/high-growth names, given their recent selloff. His PT has been lowered by $1 to $24.
    • Plenty of other analysts have raised SDN-related concerns for Cisco. Some have also brought up NFV, which aims to do for higher-level networking tasks (security, load balancing, etc.) what SDN tries to do for switching/routing (allow proprietary systems to be replaced with commodity hardware).
    • Cisco recently took another step towards fleshing out its SDN vision by unveiling its OpFlex protocol for interactions between SDN controllers and the hardware they manage. The company argues OpFlex is superior to the widely-embraced OpenFlow on account of supporting a greater level of networking intelligence, and preventing controllers from being a single point of failure.
    • Much like its ACI/Insieme platform, OpFlex drives home Cisco's efforts to keep customers from adopting rival SDN solutions by pitching an alternative that provides a rich feature set and deep network visibility, but is also linked to Cisco's proprietary hardware.
    • Shares have turned positive after opening lower.
  • Mar. 31, 2014, 11:08 AM
    • Arista Networks, a maker of low-latency/high-density Ethernet switches aiming to upend Cisco's (CSCO +0.8%) dominant data center market position, has filed for a $200M IPO under the symbol ANET. Morgan Stanley and Citi are the lead underwriters.
    • Arista's S-1 reveals the company had 2013 revenue of $361.2M (+87% Y/Y), and net income of $20.8M. Analysts previously estimated Arista's 2013 sales would be above $300M, and that the company could see a $2.5B IPO valuation. Opex rose 87% Y/Y to $172.4M.
    • In addition to port densities and latency, Arista's hardware is differentiated through the use of a modular, Linux-based OS (EOS) built to handle the needs of massive data centers, and capable of interacting with software from VMware (previous), Microsoft, and others.
    • Like Cisco, the rise of software-defined networking (SDN) platforms supporting commodity hardware pose a challenge to Arista. Also like Cisco, Arista has been trying to address the issue in part by making its switches more programmable (via APIs).
    • Om Malik, writiing about Arista in 2011: "There are many parallels between Arista and Juniper. Both of them are taking on Cisco Systems in its core businesses ... Both of them picked a “niche” instead of taking on Cisco head-on.  Both companies wrote their own network operating systems ... Both companies bet on industry defining megatrends."
    • ETF: IPO
  • Mar. 27, 2014, 3:45 AM
    • CEO salaries at companies that generate over $8B in revenues rose 4.1% to a median $9.8M in 2013 as shareholder activism kept a lid on pay, a WSJ-commissioned survey shows.
    • While the increase was slightly greater than in 2012, it was well well under the median 25% shareholder return for the companies looked at.
    • Clarence Otis of Darden Restaurants (DRI), which is a focus of investor activism, saw his pay drop 24% even as returns increased 4%, and while the compensation of Cisco's (CSCO) John Chambers jumped 49%, returns soared 65%. GameStop's (GME) Paul Raines enjoyed a 92% boost in his salary even though returns rose just 5.4%.
    • Other relevant tickers: BBBY, ORCL, NKE, VIAB
  • Mar. 25, 2014, 9:51 AM
    • Spherix (SPEX) shares are +5.2%, with the move being attributed to the company filing a complaint against Cisco (CSCO +0.8%) over 11 patents.
    • Historically, Spherix has focused on biotech R&D, but obtained the IP - which was invented by Nortel - following an agreement with the Rockstar consortium that bought the patents from the bankrupt Canadian company.
    • "The scope of Cisco’s infringement of the asserted patents has been and continues to be immense," Spherix writes. "The vast majority of Cisco’s switching and routing revenue from March 2008 until the present is and has been generated by products and services implementing technology that infringes the asserted patents."
    • Complaint
  • Mar. 24, 2014, 2:59 AM
    • Cisco Systems (CSCO) plans to invest $1B over the next two years on a new cloud computing service similar to Amazon Web Services (AMZN).
    • Cisco Cloud Service has already snagged partners, including Australian telecom operator Telstra and Canada's Allstream.
    • Cisco intends to focus on big corporations and government agencies, and optimize its services to work with software from companies such as SAP, Microsoft and VMware.
    • The introduction of the cloud service comes as Cisco looks to revive falling revenues.
  • Mar. 18, 2014, 10:15 AM
    • Citing "uneven demand trends, secular headwinds, and a lack of major catalysts," Barclays' Ben Reitzes has cut Cisco (CSCO -0.7%) to Equalweight, and lowered his PT by $2 to $23.
    • While believing Cisco's dividend (3.6% yield) will keep shares in the low-$20 range, Reitzes says he's unlikely to upgrade "until it becomes clear that the company can successfully execute on its major product transitions and fully participate in Cloud and software defined networking (SDN)."
    • Web/cloud services firms such as Google, Facebook, and Amazon pose an indirect threat to Cisco by eschewing its hardware in favor of cheap white-label gear that's often managed via SDN controllers. John Chambers predicted last year "IT as a service and white label will be [Cisco's] biggest competitors" in 3-5 years.
    • JPMorgan cited SDN (expected to see major enterprise adoption starting in 2015) as a reason for downgrading Cisco in January, and many others have also expressed their concerns. Cisco is hoping to keep customers loyal with the help of its ONE SDN platform, APIC controller, and Insieme hardware, as well as revamped enterprise pricing.
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  • Mar. 14, 2014, 9:06 AM
    • Cisco Systems (CSCO) says it has started a bribery related investigation into its operations in Russia and neighboring countries at the request of the Securities and Exchange Commission and the Department of Justice.
    • CSCO disclosed the probes in a Feb. 20 SEC filing, which said the company or its resellers may have violated the U.S. Foreign Corrupt Practices Act.
    • CSCO does not believe the results will have a material effect on its finances.
  • Mar. 13, 2014, 4:26 AM
    • Apple (AAPL), Microsoft (MSFT), Google (GOOG) and Cisco Systems (CSCO) hold a combined $124B in U.S. Treasurys and a further $39B in other government debt, the U.K.'s Bureau of Investigative Journalism calculates.
    • The tech giants appear to hold much U.S. debt offshore, which enables them to earn tax-free interest. Repatriating the assets would saddle them with a huge tax bill.
    • Unsurprisingly, Senator Carl Levin is not happy. "If a U.S. multinational puts its offshore cash into a U.S. bank and uses the money to buy U.S. Treasurys, stocks and bonds, those funds ought to be treated as having been repatriated and subject to US tax."
  • Mar. 6, 2014, 6:30 PM
    • Cisco (CSCO) is packaging various software/services offerings found in its ONE software-defined networking (SDN) platform (previous) into four suites that can be individually licensed, and which are meant for different use cases.
    • "We have a bunch of products. We’ll turn those products into licenses – a data center suite, a WAN suite, an access suite – for the enterprise," says sales chief Rob Lloyd.
    • Central to these efforts is Cisco's APIC SDN controller, unveiled last November along with several other products from its Insieme unit, and promising superior app/network visibility relative to alternatives.
    • Cisco's likely goals, in addition to simplifying its pricing: 1) To head off a slew of SDN rivals - none larger than VMware/Nicira - hoping to sell enterprises on programmable networks capable of running on commodity (read: non-Cisco) gear. 3) To further drive a mix shift towards software at a time when hardware margins are seeing a bit of pressure.
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  • Feb. 27, 2014, 7:07 PM
    • With enterprise server sales under pressure and the cheap white-label servers used by the Googles and Amazons of the world gaining more ground, IDC estimates global server revenue fell 4.4% Y/Y in Q4, a decline steeper than Q3's 3.7%. Gartner estimates revenue fell 4.5%.
    • IDC thinks market leader H-P (HPQ), which posted relatively healthy enterprise hardware numbers for its January quarter, saw its share rise 260 bps Y/Y to 26.9%. #2 IBM, whose hardware ops had a brutal Q4, saw its share drop 910 bps to 26.8% in what's typically a seasonally strong quarter for the company.
    • #3 Dell is assigned a 14.5% share (+30 bps). #4 Cisco (CSCO), whose UCS server unit remains a bright spot, is given a 4.5% share (+130 bps). Following many quarters of share losses, engineered systems growth allowed #5 Oracle's (ORCL) share rose 10 bps to 4.1%.
    • White-label server sales, referred to by IDC as ODM Direct, soared 47% Y/Y, and now make up 6.4% of industry revenue. "Density-optimized" server sales, which include white-label gear and OEM offerings, soared 70%. H-P has a 34.9% share.
    • A positive for Intel (INTC): x86 server sales rose 7.8%, up from Q3's 2.8% clip. A positive for Red Hat (RHT): Linux server sales rose 14.4% vs. 5.6% in Q3, and now make up 28.5% of industry revenue. Windows server sales (45.7% of revenue) were nearly flat, Unix sales (13.6% of revenue) fell 20.2%.
  • Feb. 25, 2014, 2:14 AM
    • Cisco Systems (CSCO) has raised $8B in the largest corporate-bond sale so far this year and the biggest for investment-grade notes since Verizon sold $49B worth of debt in September.
    • Cisco plans to use the money to finance stock buybacks and dividends, and to repay $3.75B of notes that mature this year.
    • Cisco sold debt in seven parts with fixed- and floating-rate securities, with yields ranging from 1.1% to 3.625%.
    • Moody's rates Cisco at A1 and S&P at AA-.
    • While Cisco "hasn't had smooth sailing from the equity perspective," says money manager Thomas Chow, "there's overwhelming demand...for well-known issuers with strong fundamentals." Cisco "has a large cash balance and a dominant position in product lines that aren’t going to disappear overnight," Chow adds. (PR)
  • Feb. 24, 2014, 2:11 PM
    • Cisco (CSCO -0.1%) has filed a shelf registration for a debt offering whose proceeds the company plans to use to pay down $3.75B in debt maturing this year, and to finance its dividend (recently hiked) and buyback program (expanded by $15B in November).
    • Reuters reports Cisco is raising at least $7B. The networking giant is said to be offering floating rate notes with three maturities (18-month, 3-year, and 5-year), and fixed-rate notes with four maturities (3-year, 5-year-, 7-year, and 10-year). Informa's Ken Jacques states $17B worth of orders have been placed.
    • With demand for blue-chip corporate debt remaining strong, interest rates are bound to be low. Reuters states Cisco's 3-year fixed notes is set to carry only a 45bps premium to comparable Treasurys, and its 10-year fixed notes only a 105 bps premium.
    • Cisco had $47.1B in cash/investments as of Jan. 25 (much of it offshore), and $17.1B in debt.
  • Feb. 13, 2014, 11:28 AM
    • With a fair amount of bad news priced in, Cisco (CSCO -4.3%) hasn't caught any downgrades after providing soft order data to go with an FQ2 beat, dividend hike, and in-line guidance, and has only seen one PT change - MKM has cut its target to $20 from $24.
    • Some analysts are a little worried about Cisco's margins. Though FQ2's gross margin (61.3%) was in-line with a 61%-62% guidance range, Goldman states it was below a 61.9% consensus. The firm also points out product GM (hurt by declining sales) fell 210 bps Y/Y.
    • CFO Frank Calderoni mentioned on the CC (transcript) FQ2 price pressure was at the high end of Cisco's historical range. Goldman sees margins rebounding in 2H14 as volumes recover, but is also keeping an eye on whether "discounting pressure mounts as large cloud customers become a larger percentage of the mix."
    • John Chambers defends his company in part by asserting Cisco's enterprise deal pipeline is up over 20%, and its pipeline of $1M+ enterprise deals is up 30%. A pickup in signings of "architectural" deals covering a diverse array of products is said to be responsible.
    • Cisco's enterprise orders fell 2% Y/Y in FQ2, a more moderate drop than the 12% decline seen in carrier orders.
    • More on Cisco's earnings
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  • Feb. 12, 2014, 5:29 PM
    • Cisco (CSCO) guides on its CC for FQ3 EPS of $0.47-$0.49, in-line with a $0.46 consensus. The company also reiterates FY14 EPS guidance of $1.95-$2.05 (consensus is at $1.98).
    • However, the networking giant adds its orders fell 4% Y/Y for the second quarter in a row. The main culprits: Switch orders fell 6%, router orders 5%, and (thanks to plunging set-top sales) service provider video orders 20%.
    • Switch sales (39% of product revenue) fell 12% Y/Y in FQ2, and router sales (21% of product revenue) fell 11%. SP video fell 22%, and collaboration (videoconferencing, WebEx) 7%; the latter could be a negative for Polycom (PLCM).
    • Data center (UCS server) revenue only rose 10% after growing 44% in FQ1. However, Cisco asserts orders growth was in the mid-30s range. Wireless (dominated by Wi-Fi), another growth area in recent quarters, fell 4%. Aruba (ARUN) -2% AH in response.
    • Americas orders -5%, EMEA -2%, Asia-Pac -5%. Enterprise -2%, SMBs and public sector +1% each.
    • CSCO now -3.8% AH.
    • More on Cisco
  • Feb. 12, 2014, 4:44 PM
    • Cisco (CSCO) doesn't waste time on its CC to announce it's guiding for FQ3 revenue to drop 6%-8% Y/Y, in-line with a 7.1% consensus.
    • John Chambers mentions emerging markets orders only fell 3% Y/Y in FQ2, after dropping 12% in FQ1. However, service provider orders fell 12% after falling 13% in FQ2; that figure likely suggests additional share loss.
    • Shares have sold off in response to the remarks.
    • FQ2 results, details/dividend hike
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Company Description
Cisco Systems Inc is engaged in designing, manufacturing and selling of Internet Protocol (IP) based networking products and services related to the communications and information technology (IT) industry.