Cisco is Too Big, Says RBC: Break it Into Routing, Cloud Companies
October 6, 2014
Grazed from Barron’s. Author: Tierman Ray.
In the wake of last week’s breakup announcement for eBay (EBAY), this morning’s breakup announcement by Hewlett-Packard (HPQ), RBC Capital Markets’s Mark Sue wrote a note urging Cisco Systems (CSCO) to go the breakup route. “Split/spin-off parts of Cisco’s business and we think the lagging stock could get to $40, a price not seen in 14 years,” writes Sue.
eBay, Agilent, JDSU and even HP this morning get high marks from investors for their ability to adapt to a changing world.” Sue has in mind a switching and routing and services company, on the one hand, and a cloud computing company on the other: We believe Cisco could separate parts of its routing, switching and services into Cisco Solutions which are mature and profitable and manage these businesses for higher FCF. Cisco Solutions could also drive industry consolidation by acquiring high cash-flow businesses, taking capacity out of the system (carriers have all the purchasing power), improve profitability metrics through cost optimization and return FCF to shareholders via dividends and buybacks…
We believe this would be a great stock […] Cisco Cloud could pursue bold deals to acquire early-stage tech companies and invest in R&D to drive growth from new technologies and solutions without concerns about cannibalizing Cisco’s legacy platforms. Cisco Cloud could pursue an expanding TAM, share gains and technology differentiation in high- growth segments such as wireless, security and data-center without concerns of heavy R&D spending; we estimate an annual revenue run- rate of $10.5B that may grow 15-20% YoY. Peers would be faster growing comps with high revenue multiples (think Arista, PANW etc.)…
Read more from the source @ http://blogs.barrons.com/techtraderdaily/2014/10/06/ciscos-too-big-says-rbc-break-it-into-routing-cloud-companies/