Cisco front-loaded several quarters of costs into one quarter in order to make its gross margins look better. |
In our opinion, companies that cannot sustain high revenue growth eventually see their premium erode over the sector. Although Cisco has succeeded in moving attention away from its lack of top-line growth to improved margins, we believe that investors are hardly attracted to a cost-cutting story. |
It can be a growth story, but if you're experiencing a recession, it's still going to be the best performer. |
Lucent has experienced some delay in executing its restructuring plan but [we] believe that the company is finally starting to feel a sense of urgency about its return to profitability. |
We believe that such expectations are not based on fundamental analysis, but rather on the hope that Fed rate cuts will soon have a positive impact on the economy, and that enterprises will start spending again on (information technology) communications towards the end of calendar 2002. |
We continue to believe that there will be no end-of-year 'catch-up' scenario in spending, given enterprise focus on cost savings. The latest earnings conference calls by the contract manufacturers and server makers confirm this view. |
We expect the restructuring plan to provide ongoing cost savings and enable Lucent to break-even in fiscal Q1 2002. |
We're not telling people to rush out and buy. We still see a gradual erosion of the multiple, a certain amount of disillusionment with management, a lag in earnings relative to the economic recovery and corporate spending. If people think we're turning positive on the stock, we're not. |