Saturday, February 12, 2005

Carly leaves with her purse full

According to the proxy statement filed by HPQ Ms. Fiorina made out handsomely after being forced to resign by the board. Carly will receive a severance package worth about $21.4 million, and stands to gain at least $21.1 million more. Details below:

"HP will make a cash payment of $14,000,000 to Ms. Fiorina, which represents 2.5 times her base salary and targeted annual cash bonus. This amount will be payable six months after the date of the Agreement, together with interest at an annual rate of 2.78%. In addition, Ms. Fiorina will receive a payout of $5,880,000, which represents Ms. Fiorina's award for the 2003-2004 program year of the LTPC Program, and a payout of $1,502,700, which represents a prorated amount of Ms. Fiorina's award for the 2004-2005 program year of the LTPC Program".. also "Ms. Fiorina will receive $50,000 for financial counseling, legal and outplacement services." Why give $50,000 for these kind of services after basically being fired? How many HPQ employees got $50,000 for "legal and outplacement services" when they were chopped after HPQ merger with Compaq? These people were "laid-off" and Carly got told to leave, I do not know but it sounds more logical to provide this kind of services to the "laid-off" employees then someone who was "Fired".

"Ms. Fiorina also will be permitted to keep her personal computer equipment and receive technical support for a three-month period, will receive administrative support for a six-month period, and will receive maintenance of home security for a one-year period. Ms. Fiorina will receive a cash payment for the balance of her unused vacation time. Ms. Fiorina retained her vested rights under qualified HP retirement plans and under an HP excess benefit plan, and will be eligible for HP's continued group medical coverage through the Consolidated Omnibus Budget Reconciliation Act of 1995 (COBRA), for up to 18 months."

Carly also received restricted grants of about 826,000 shares during her tenure, that along with her other HPQ holdings, now have a market value of $18.2 million. In addition, Ms. Fiorina will receive a pension of at least $200,000 a year that was not included in the company's severance calculations. The pension could be worth at least $2 million. Also do not forget, Carly received a $3 million signing bonus along with a restricted stock grant worth more than $65.5 million at the time to woo her away from LU. Does she really need another job?

The funny part is that HP has not removed her bio from the executive page: I guess paying someone $21 million to leave is tough pill to swallow. (this link will eventually be deleted- sorry if you are late)

Wednesday, February 09, 2005

Carly steps down

HPQ announced that Carly Fiorina is stepping down from the CEO position. I was never a fan of Carly and I for one welcome this. But this does not solve the deep structural problems that exist at HPQ. But I believe it does open the doors for HPQ to spin-out different segments of its business like it did with A. Except stock to trade up, maybe they can bring back Walter to run his dad's business? Now that would be a welcome change, but the BoD has too much pride to do something right like that.

Tuesday, February 08, 2005

Cisco surprises -- not exactly as I expected

CSCO results were not as I expected for the most part. Revenues and EPS barely came in at midpoint of guidance instead, of my expectations for higher-end results. Book-to-bill was below 1 even though orders grew faster than revenues. October book was pretty bad and switches were weaker than I had first thought, which continued into January quarter. My guess on book-to-bill being better than 1 was wrong since, October was worse than I had thought. Product push in late December and services push in late January was not enough. Inventories were slightly up with company ramping up for the usual surge in July quarter.

Where was I right? Services saw very nice push in revenues and defered revenues. The ramp in cost associated with that was bit more than I expected hurting gross margins. Opex increased due to hiring of 1,000 new employees; this should continue but at a slower pace. As I had stated, Advanced Technologies did have a very strong quarter with revenues up 40% Y/Y driven by Optical, Storage and IP Telephony. Even with lower than expected April guidance, the company still expects revenues to grow 10%-15% in FY05, which means July has the potential of growing 8% sequentially- clearly a huge quarter but as I said all this means the street numbers will not change much for now. But if you believe CSCO can do 8% q/q growth in July then its time to buy CSCO, and I certainly beleive CSCO sticks to its guidance and will have a strong July quarter.

Other important things on the call included the discussion about Federal government not spending on infrastructure but on tanks and bullets. CSCO does not expect government to come back for another two quarters. This could be a negative for FDRY which drives close to 25% of its revenues from government. Also, management noted that Japan, France and Germany are all having economical issues which is not helping sales. This does not bode well for all technology vendors since these three are some of the biggest economies in the world.

CSCO's new ISR Access router had a stellar quarter and has hit a$1B run-rate something many of the Advance Technologies categories are far from. Also interestingly ISR is being shipped 40% of time with security features. This is good trend for integration of various functions into one box (plus protects gross margins) in general but could be negative for JNPR with its NetScreen products and push into integrated boxes also this could open up the new J-Series to serious competition. It could also be negative for CHKP and WGRD. On the other hand CRS-1 is doing ok gaining new customers but nothing was said on how its doing with generating revenues like JNPR is with its core routers. Other than that it was another one of those CSCO quarters :)

Monday, February 07, 2005

Can Cisco surprise?

CSCO is going to release its fiscal second quarter earnings tomorrow (2/8). The consensus expectations are for revenues of $6.13B and EPS of $0.22. CSCO has guided to 1%-3% revenue growth and gross margin between 67%-68%. Areas of strong interest during tomorrow's call will be revenues/eps, gross margins, operating expenses, shares outstanding/buy-back, inventory, book-to-bill, guidance for April (which is a seasonally soft quarter- the weakest quarter) any indication of what might be the next area in Advanced Technologies that CSCO might expand into. There are few major-sell-side shops that expect results to be towards lower-end of the management expectations and some characterize the quarter as "difficult". I believe CSCO results might not be that bad.

This is what I expect: I think CSCO has the potential to surprise the street not only for FQ1 but also in the April guidance. I believe closer to 3% growth is possible for January. Street expects April guidance of 1.6% sequential growth, I believe 2.5% at the high-end is possible for April guidance. Book-to-bill could be better than 1 (whereas most expect this to be below 1 or close to 1), inventories should decrease slightly, opex will be up due to continued hiring, gross margin could be flat to slightly up, Services should have a stellar quarter. Advance Technologies had a good quarter as well driven by optical, Linksys and IP Telephony.

All in all it should be a decent quarter with a possibility of a positive surprise. But I do not think street estimates for the year will move up substantially. But given that CSCO stock has been weak lately and is at a fairly decent valuation I think stock could move higher. But with CSCO being such a large part of Nasdaq it's very tough getting the direction of CSCO stock right- its like calling the market direction.

Full Disclosure: I am long CSCO