Nader’s Update #2 to Upset Cisco Shareholders September 9, 2011
Dear Cisco Shareholder:
On Tuesday, September 13, 2011 you can register for a live webcast on Cisco’s upcoming Financial Analyst Conference led by CEO John Chambers.
Since my last letter to you on June 30, 2011, we have all read the second quarter earnings report from Cisco. For what it is worth, Goldman Sachs upgraded Cisco from neutral to a buy, declaring that Cisco is cutting costs and is not a “broken franchise.” As you know, Cisco’s stock remains stagnant, mired between $15 and $16 a share. The company is adding nearly $3 billion a quarter to its reserves which are soon to reach $50 billion.
My conversation with a Cisco executive assures that the arguments we have raised are also intensely debated inside Cisco about what to do with those accumulated earnings. He cited the usual four options – dividends, buybacks, acquisitions and accumulation. I got the impression that there was more interest in buybacks than dividends and objected saying: “The shareholders who have contacted me will be furious if you spend some of their reserve on buybacks. Studies have shown that most buybacks do nothing for the stock.”
He told me that Cisco had spent $60 billion in buybacks over the past ten years. That is equivalent to over $10 a share, I estimated.
On August 25, 2011, The New York Times had a commentary titled “The Negative Side of Share Buybacks.” It ends with these words: “Regular dividends put cash in the pockets of all investors, leave market timing to them, require management discipline, and avoid any real or imagined conflicting motives. If a company can afford to part with cash, investors should prefer dividends to buybacks.”
The Cisco executive told me that all top executives are receiving zero bonuses this year.
I emphasized that giving shareholders more dividends is what they are entitled to – it is their money after all – and it will be good for the economy by increasing consumer demand.
“NO BUYBACKS, MORE DIVIDENDS, NOW!” should be our message to Cisco management. It also should be the message from shareholders of all big companies hoarding huge piles of cash like Apple, Google, Intel, Microsoft and others.
Please let Cisco management hear from you on September 13 and afterwards. Please let me hear from you and your Cisco shareholder friends with any observations, experiences with investor relations and suggestions by e-mailing me at [email protected]
There is strength in numbers.
Best wishes, Ralph Nader
Register for the event here:
Financial Analyst Conference, taking place Tuesday, September 13, 2011. This one-day event is designed exclusively for members of the investment community and includes keynote sessions by senior executives from Cisco.
Featured speakers include: – John Chambers, Chairman and Chief Executive Officer – Gary Moore, Executive Vice President and Chief Operating Officer – Frank Calderoni, Executive Vice President and Chief Financial Officer
Register now for the live webcast.