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They can easily solve their revenue issue with acquisitions, instead of spending 10 b on buybacks, they could buy 2 to 3 companies.

I don't think that will turn out to be true.

The core issue here is that the market for their flagship switching products is undergoing a transition. People need fewer switches and need fewer features per switch, whether you're talking access layer or core.

Cisco is a premium provider infrastructure products. Their pricing is roughly 30+% higher than their competitors and that's worked throughout their history based on the feature sets they could offer. As SDN grows, those features are abstracted from the hardware, many of the features aren't really required anymore, and there isn't any need to pay Cisco their premium. That's why routing, switching, and date center are declining in the mid single digits, overall revenue declined by a similar amount, and FY'18 revenue is projected to be 1-3% lower than FY17. Cisco's using Cisco One to try to protect the value of the software and allow the hardware to commoditize, but that doesn't fix the overall issue that many of the features aren't that important anymore.

52% of Cisco's revenue came from that space last year. With a 4-5% decline, that's $1.14B in revenue that disappeared from what is historically Cisco's highest margin product line. It's not that easy to replace, especially from a net earnings perspective.

The other problem that isn't obvious from the financial statements, but is true, is that Cisco has been in a process of trying to reduce the cost of sales by hiring "early in career" sales reps. On the surface, that's not such a bad thing, but in the middle of several key market transitions, it leaves Cisco out of position to drive effective messaging.

I don't see the revenue declines stopping in FY'18. I expect a slow drift downward over the next couple years. The company is far from dead, but it needs to be more agile than it has been in the last several years if it's going to thrive.

I see Cisco as a value trap right now. Great dividend yield and very reasonable looking P/E, but revenues are declining and key markets they rely on are fundamentally changing in ways that are not to their advantage. I expect price erosion as the year progresses - price erosion that will exceed the dividend yield and erode capital.

That said - I don't have the stomach to be a short seller, so for me, I'm on the sidelines when it comes to Cisco. I'll wait until it's a screaming value (down in the $20-$22 range) before jumping back in. It may never get there (my crystal ball is in the shop), but I think buying at $31 will end in tears.
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