Cisco Systems (NASDAQ: CSCO), the powerhouse maker of computer-networking equipment, fired an executive charged by Brazilian federal authorities in a tax-evasion probe at the company.
Last month, Cisco said Brazilian authorities raided its offices in Sao Paulo and Rio de Janeiro and seized documents and detained employees. From the sound of what was going on, it seems like there was a complicated fraud scheme being perp'd out of Brazil that benefited Cisco, its Brazilian unit, and a vendor in the country.
How big is this issue? Hard to tell at this point. What we do know is what the Brazilian authorities are alleging. Authorities there claim that the U.S. company evaded 1.5 billion reais ($832 million) in taxes.
The tax hit is relatively small compared to Cisco's $170 billion market cap. The company has a strong balance sheet and this shouldn't be particularly serious, even if the firm had to pay the entire alleged amount. Meanwhile, Brazil has tripled its police staff in a major crackdown against white-collar crime.
What remains to be seen is how big a deal this is for Cisco's entire Brazilian operation, and whether this affects sales and growth going forward. I'm interested to see how well the company communicated their exposure to investors.
Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author's fund doesn't hold a position in CSCO.
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Reader Comments (Page 1 of 1)
11-25-2007 @ 1:38PM
Anthony to the S. said...
As an investor I wouldn't mind hearing "free 2 week trip to Brazil, on the house"..
http://paidandpopular.blogspot.com
11-28-2007 @ 4:37PM
JR said...
Hi Folks,
No where in any of the recent posts have I seen talk of how debilitating the Brazilian taxes really are to their people and international trade. The tariff and taxes amount to 125% of as sold price on electronic goods...even if there is no Brazilian equivalent. Your Cisco gear just doubled in price!
I do not condone the actions of the people involved, however I can see the temptation to go around customs at such high taxation rates.
JR