Cisco's Board Has Some Explaining To Do

Over the past five years, Cisco's board of directors has sold $ 27 billion in reimbursements. What do you think?

Cisco CEO John Chambers warned that three years ago the transition to cloud computing would throw the future of the IT industry in an earthquake. Specifically, he said publicly that Cisco was in the midst of a "sudden and brutal consolidation of the IT industry where the top five players, only two or three of us will have a way as fast as five years."

To make matters worse, John Chambers himself has endorsed his words by selling Cisco shares in his personal portfolio. On Cisco Live Day May 19, 2014, when the cameras described the "brutal and brutal consolidation" that Cisco has found, it has sold about $ 50 million of shares, as reported by Barron. A year earlier, in May 2013, and probably already aware of Cisco's risk, they will sell about $ 38.5 million of shares Cisco has also reported Barron. And for the past three years, it continued to receive incentive grants - and continued to sell.

So why board otherwise with shareholder money? Why does Cisco continue stock repurchases when its chief executive is trying to sell?

The sale of rooms makes sense; Cisco does not make refunds

I think Cisco, now a 32-year-old technology company clearly faces existential threats.

The company has become the largest business networking establishment in the world, but in the rapid shift of IT spending to the cloud, Cisco's growth has become "anemic," according to one analyst. Sales for Cisco's most recent quarterly business fell 3 percent in the development of long-term securities holders.

The disturbance due to the cloud rapidly eroding Cisco's core business on routers and network equipment. In its most recent quarter, Cisco reported that its alternative revenue decreased 5% to $ 3.31 billion, while routing revenues were hit, down 10%. We are already beginning to see the effects of these changes: Last summer, Cisco laid off 5,500 employees, or seven percent of its workforce.

The problem for Cisco? None of the three providers of the super-scale cloud - Amazon, Microsoft and Google - who are not interested in expensive routers and Cisco networking equipment. (Full Information: Owning Amazon Stocks) These vendors use basic equipment optimized and managed by the software, not written and sold by Cisco.

Cisco also tried to be a player in the public cloud, but seems to have failed. In December 2016, Cisco confirmed reports that killed its proposed 1 billion cloud. "Notice another victory in the body of the Amazon Web Services unstoppable bag," said Julie Bort of Business Insider. "Its rapid success has cost many victims since last year."

Cisco reimbursements are ridiculous

Before criticizing the Cisco board to put shareholders at risk with reckless reimbursements, make it clear: they have the legal authority to do so. Before the SEC did not change the rules in 1982, stock market purchases of corporate stocks were illegal and considered a form of market manipulation.

But in 1982, the SEC instituted Rule 10b-18, which allowed companies to acquire treasury stock with impunity. Under Rule 10b-18, many companies like Cisco have been aggressive buyers, I was told "capital return to shareholders." Since 2001, Cisco has spent about $ 96.6 billion in repurchase, accounting for approximately 57% of the total market value of the company today. Think about this.

For every dollar of revenue over the last five years, Cisco has spent 18 cents on repayments. Here the problem is not described or explained to shareholders and should not be explained through the legal coverage provided by Rule 10b-18 dollars spent on repurchase to increase risk for long-term shareholders.