Technology powerhouse Cisco Systems (NASDAQ: CSCO) announced the acquisition of private company Cognio. The financial terms were not disclosed as is Cisco's nature to when acquiring private companies. Obviously, it must reveal purchase price and terms if it acquires a public company, as it recently had with WebEx. Cisco paid over $3 billion for WebEx. Cognio adds to Cisco's portfolio in the wireless technology sector.
Cisco Systems is the expert in integrating acquisitions into its ever-growing tent. To date, it has acquired over 130 companies since 1993. Cisco has re-defined the world of research and development (R&D), as while it has been the master of development, it hasn't bothered too much with the research side of the tandem. Cisco's strength lies in integrating a newly acquired entity very quickly and very seamlessly into its own operations. From where every one sits in the headquarter building to the finite points of its 401k plan, Cisco has an internal team that jumps into action the moment its CEO blesses and signs on the bottom line.
Cisco has made some brilliant acquisitions in the past such as Scientific Atlanta and WebEx, as well as some duds. The beauty of Cisco's strategy is to recognize mistakes quickly, correct them and march on. Nurturing a bad acquisition is not in its make up. Cisco will eliminate non-cooperating staff with lightning speed while retaining the valuable technology of the acquired.
Cisco has the winds at its back. The recent fiscal year that ended July 31, 2007 was a strong year of growth and renewed vigor. The CEO (and head cheerleader) John Chambers has expressed clearly that global growth is the best he has ever witnessed. Cisco now derives nearly 45% of its revenues from international sales. With its powerful distribution and instillation teams, very few large opportunities are missed by this behemoth.The emerging markets of India and China are growing at a 45-50% rate, and Cisco has the feet on the street to maintain that growth.
I estimate Cisco's July 31, 2008 fiscal year of revenues of $41 billion and earnings per share of $1.60, followed by July 31, 2009 at $47.5 billion of revenues and earnings per share of $1.90. I have a $40 price target, a full 30% higher from the current $31. I have been recommending Cisco since it was around $20.
Georges Yared is the CIO of Yared Investment Research and author of Baby Boomer Investing...Where do we go from here?
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