The Cisco share (CSCO) has after disappointing quarterly
results lost 11 percent in one fell swoop. Sales fell by 9 percent compared to
the previous year and, according to management’s forecast, should fall by a
further 10 percent in the current quarter. It seems as if Cisco, despite the
high demand for conference software such as WebEx, is more of a victim of the
Corona crisis, instead of benefiting from the acceleration of digitization
triggered by the virus.
On the other hand, the drop in the share price has driven
the dividend yield to an attractive 3.3 percent, close to an all-time high. How
to explain the weak numbers and whether the Cisco share is a bargain, you will
find out in this share analysis. In addition, Cisco is one of the 20 stocks
that we save each month in the starter depot. If our judgment is negative, the
share is up for grabs.
The business model: This is how Cisco makes money
Cisco is one of the dinosaurs of the Internet. Its routers
and switches have been ensuring that the flow of data from A to B works for
decades. Internet hardware is accordingly one of Cisco’s core business. At the
latest with the strategy of “intent-based networking” introduced in
2017“However, things started to change. Intent-based networking tries to master
the increasing complexity of the configuration of the network landscape. To
meet this challenge, Cisco simplifies the configuration with software. Instead
of configuring the network landscape directly, very technically and
specifically, the software is told in a much more general and at the same time
simpler way what the network should look like. The software then takes care of
the actual configuration. “Intent-based networking” also makes good business
sense for Cisco. Compared to hardware, software scales better, achieves higher
margins and can more easily ensure predictable sales through subscription
models.
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