Cisco milks the cash cow

NEWS Cisco's expanding core market continues to be the key to the networking company's healthy balance sheet while the rest of the industry suffers during the current economic downturn. John Chambers, CEO of Cisco, told industry analysts in a conference call that the company's cash and investment treasure chest had increased by $2.1bn to $21bn. "In any economy especially during the tough times one of the key indicator of the health of the company is its ability to generate cash flow and maintain no debt," he said. Samuel Wilson, analyst at Merrill Lynch, called Cisco's balance sheet "stellar". "Operating cash flow generated was up $2bn and inventory turnover increased. We believe Cisco's quarter was positive and maintain our intermediate-term buy rating." Chambers said the company remained cautiously optimistic about the future claming it could stay on track providing it focused only on the problems within its control. "We are focused on what we can control and influence. These are our profits, cash from operations, productivity and profit market share gains. Our visibility to the future remains limited as our customers' visibility to their own revenue remains very limited," he said. The quarterly growth had established a second slightly higher plateau from which to build. But, Chambers added, there will be no dramatic changes until Cisco's biggest customers - the service providers - started to make money. But it wasn't all good news for the company. Over 700 employees were made redundant during the quarter and sales continued to drop across all technology areas. As part of the company's recent six point plan to remain healthy, Chambers had announced that only sustainable areas will benefit from investment. This realignment means sales, manufacturing and services made good progress during the second quarter but Cisco's marketing and engineering businesses continued to struggle, admitted Chambers. Revenue across Europe showed solid growth with sales doing particularly well in France, Italy, Spain and Switzerland. However, Chambers claimed orders in Germany were down by "double digits". "I believe our opportunities today are greater than ever to achieve our goal yet we continue to balance this calm confidence with a healthy paranoia in these uncertain economic times, " said Chambers.