Big News at Cisco?

PC Pro is reporting Cisco, the US networking giant has big plans to enter the mainstream consumer electronics market.

Cisco is considering the production of radios, phones and stereo systems, according to the Financial Times, which interviewed Charles Giancarlo, the company's chief development officer.

While the Internet fridge has long been held as an example of a high-tech white elephant, Cisco apparently believes the demand for increasing Net connectivity for a range of devices presents a new opportunity for the venerable networking company.

'Consumer electronics companies have been able to compete on a stand-alone device but the dynamics of the market are changing,' he told the FT. 'The Internet and new networking requirements are enough of a disruptor for us to enter a new market'.

While best known for network routers and switches, the acquisition of Linksys in 2003 already positioned the company in the home networking market (see Linksys frees Skype from the PC). And Giancarlo believes Cisco's existing relationships with major online players such as Google and Yahoo! will give it a further edge.

Cisco has clearly had its eye on the living room for a while though, with a string of pertinent acquisition including Scientific Atlanta, a US maker of set-top television boxes, and KiSS Technology, a Danish maker of Net-connected DVD players.

Whether the likes of Sony, Samsung and Philips will be shaking in their high-tech, branded boots remains to be seen, after all the consumer electronics is already a very competitive market.

Yawn.
It was not long ago that Cisco missing or beating the street was market breaking news. The market went up or down based on Cisco. How would the market have reacted to this news in February of 2000? Today Google news seems far more relevant. My how times have changed. Cisco sells a commodity and looks to sell more commodities where the competition is even more intense. Who cares?

Microsoft is another bloated company.
The market goes up. The market goes down. No one really wants to buy or sell either one of them yet all the mutual funds think you "have to have them".
They are still labeled "growth companies" although their growth is long gone and likely never returning.

So why does Cisco feel the need to compete in a crowded electronics market?
Hmmmm. Could it be there is little growth left in routers or is it simply there is little growth left in Cisco routers? Either way is there a difference?

I think not.
To preserve some sort of lie about growth, Cisco just might go on a buying spree of overpriced companies. They did it before, why not try it again?

No one seems to have learned anything from 2000. In its heyday, Cisco went on various buying sprees, none of which really did much for the bottom line but it did make revenues go up. Corporations in general seem to have cash to burn after a 3 year runup, but with a yield curve about ready to invert and a consumer led recession coming up to boot, companies once again want to capture market share and increase revenues regardless of price.

Will Sony, Samsung and Philips be shaking in their boots or laughing out loud?
It will be a big waste of money if Cisco follows through with their plan.

At a market cap of $113 billion and no debt, Cisco would be wise to declare a big dividend and admit (like Microsoft) that it is just another overbloated giant with nowhere to go. If it returned 100% of earnings to shareholders as dividends there might be a reason to hold it. If it instead goes into debt trying to compete outside its core competence in a very competitive electronics market, it is without a doubt in for some extremely rough times.

I am ready for an attitude switch.
Corporations should forget about growth at any cost and instead start returning earnings with increased dividends. Fat chance. That will likely happen at the end of the bear market when companies should be looking for ways to expand growth.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/