Focus: Cisco
>> cisco is seeking regulatory approval to sell a new derivative, failing to stop a rule forcing the company to sell options. cisco is betting the price investors would pay for derivatives would show its options are worth less than other valuation standards suggest. in the meantime, cisco beat analysts’ per-share estimates by a penny in the latest quarter. suzy assaad got an outlook for the quarters ahead from chief financial officer, dennis powell. she began by asking about cisco’s router business.
>> we need to look at the new data coming out, we have had great success with the new crs-1 router, a router that is at a much higher level of performance than any product out on the market to date. we are seeing great success. we have 25 -- excuse me, 15 customers paying and 15 already in trials with this very significant product. we also have the i.s.r. router, an integrated services router, bringing together a number of advanced technologies on to an integrated platform. it has i.p. telephony, security and now wireless all on to an integrated router. this is the highest performing router in terms of sales we’ve had in our company’s history. we introduced it last fall and are already at a billion dollar run rate.
>> what about gross margins? we saw them reduced certainly from a year ago. you came in at 66.8% versus 68.8% from a a year ago. what’s the outlook for the gross margin?
>> gross margins are stable. we saw them at basically the same level as last quarter. we see continued growth in the high-end product. we also are beginning to see some improvements in terms of the cost structure as we reengineer the products and make them more cost effective on the manufacturing side. clearly, we need to watch this but we feel comfortable with the position in our gross margins. they are very solid. pricing for us has remained fairly stable. overall, we’re very comfortable with the margins as they are today.
>> you still think you can grow the top line between 10% and 15% annually?
>> over the next four to five years, we believe that the opportunity for us, based upon industry analysts and their analysis of the market that we compete in and growth we expect to see in in them, we should be able to grow in the 10% to 15%. it’s up to us to execute but the opportunity is there for us.
>> what’s the situation in terms of cash on hand?
>> cash on hand currently is at $16 billion. we continue to generate about 1.9 billion dollars of cash from operations this last quarter and we’ve been able to maintain the cash balance even with the repurchase of about $2 billion of our stock.
>> what do you plan on doing with all those billions?
>> we’ll continue to first of all use the funds to fund acquisitions. we’ve made a number of acquisitions in the last year and we will continue to be aggressive on the stock repurchase program. we believe for now, it’s the best way to return our cash to our shareholders.
>> that was dennis powell of cisco systems speaking with our suzy assaad. also making news today, a key senate vote on asbestos legislation on hold again. after a two-week delay, the senate judiciary committee today resumed debating chairman arlen specter’s bill that would create a $140 billion national trust fund to compensate asbestos victims. the legislation would end asbestos lawsuits that have forced more than 70 companies into bankruptcy. today, the committee approved several amendments, including a provision to pay the sickest victims from the fund’s start-up but after delay caused by the evacuation of the capitol, specter ended the markup for the day and says work will continue tomorrow and perhaps into next week. he warned that if the committee doesn’t vote soon, the legislation could be in jeopardy.
>> if we’re not in a position to present a bill to the majority leader so that he has is in june, if he has it in june, we’re going to be overrun by the proposings process -- appropriations process.
>> the national association of manufacturers supports the bill. insurance industry groups and some labor unions are pushing for more changes. checking shares of companies that may be affected by the legislation, u.s.g. corp. gaining 2.3% today. w.r. grace up 5.7%. in the meantime, billionaire carl icahn won a seat on the board of blockbuster after accusing the company’s chief executive of wasting money on attempts to get customers back into video rental stores and of paying himself too much. icahn, the company’s biggest shareholder, got enough votes at today’s annual meeting, to become a director, as did two of his nominees. the current chief executive will remain chairman. he and icahn locked horns over how to revive profit at blockbuster. it lost $1.25 billion in 2004 as customers defected. taking a break right now, then we’ll tell you more about disney. earnings rising more than 30% but shares end the day lower. we’ll talk about the company’s performance with the incoming chief executive, robert iger.
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Listen Market briefing --- Ellen (slow)
Nasdaq --- Robert (slow)
Walmart --- Bob (fast)
gains across the board for the dow, s&p and nasdaq -- oil prices declined for the first time in six days, a report showed the trade deficit unexpectedly narrowed. economists expected it to widen to a second straight record amount. cisco earnings came in stronger than expected. all of those factors boosting stocks today. however in the treasury market , little change across the yield curve. the yields holding near the lowest in almost a week -- in currency trading, the dollar rose to the highest in almost a month against the euro. it erased a loss against the yen after that trade deficit report came in stronger than expected. for more perspective on the stock trade, cisco helping boost stocks and google one of the gainers, as well. robert gray with details from the nasdaq marketsite.
>> a number of factors contributing to the nasdaq’s .5% gain today. we had crude oil declining, we also had the trade balance numbers coming in and some economists saying they will revise higher their first-quarter g.d.p. we had the all clear after a plane flew into restricted airspace in washington, d.c. there was cisco’s better than expected earnings out after the close yesterday, that stock rising throughout the session today, closing at a two-month high coming in a penny higher than the average analyst estimates. raymond james upgrading the stock to a strong buy and lehman brothers raising its fiscal year 2006 forecast, as well. google shares rising to a record in the session today. google won a license to operate in china. it’s hiring staff there, looking to open an office in shanghai by year’s end. also yahoo rising today, starting a new subscription music site on the web, charging an annual fee or monthly fee for unlimited downloading of stongs. that sent that stock soaring today. apple and napster plunging on the news. those were weighing heavily on the nasdaq through the morning trading. dave landry, director of research at trading markets dot-com telling me to watch for overhead between the 1970 and 2020 levels. he said a lot of people bought in at this level and may be looking to sell. at the nasdaq, i’m robert gray.
>> and wal-mart adding upscale household goods and self-service checkout lines to fend off target. both companies set to announce quarterly earnings tomorrow morning. bob bowden has been comparing the performances of the two retailers and joins us with the earnings due out before the bell.
>> wal-mart’s glass half full reads like this. if wal-mart reports 12% profit growth it would be the 13th consecutive quarter of better than 10% growth. with the glass half empty reading like this, 12% growth would be the slowest in 10 quarters for wal-mart and right around half the earnings growth expected from rival target. this is not the only measure where wal-mart underperforms target. consider recent same-store sales data for the two companies. in march, when retailers benefitted from an early easter, wal-mart grew comparable sales at 4.3%, nowhere near target’s gain of 8.2%. in april, wal-mart’s same-store sales up .9% and target’s, 1.3%. this month, the forecast different, as well, wal-mart forecasts comp sales will rise in a range of 2 to 4% and target’s, 3 to 5%. target’s same-store sales los angeles grown faster than wal-mart’s for 10 months. robert buchanan says wal-mart is not running stores as well as they used to.
>> i think their business has slowed. they’re missing product in the scores and are slow at checkout so the crispness of the execution that’s characterized the company for many years isn’t there right now.
>> target is deliberately going after wal-mart shoppers. one portfolio manager for bb&t asset management says -- stock prices have been reacting to the sales and earnings growth disparities at the two companies. over the past year, wal-mart shares down 11% but target in the last 12 months, up 9%. checking today’s action in advance of tomorrow’s earnings reports and it’s the same trend. wal-mart down .25% and target up 1.5%. we’ll have the numbers when they break tomorrow morning.
>> thanks so much for that. also have news to tell you about microsoft. a challenge to the company from latin america. brazil encouraging other developing countries to follow its lead in replacing microsoft software with three alternatives such as linux. banco de brazil plans to begin a group to promote open source software in brazil . in that country, the bank, postal postal service and state oil company have switched to linux at the government’s suggestion. in brazil, the government is facing a national scale the type of challenge met by vienna and munich. those shares unchanged. taking a break. when we return, we’ll hear from cisco’s chief financial officer, dennis powell about, third-quarter earnings.
