STOCKREPORTS

Cisco Systems, Inc.

Nasdaq Symbol CSCO In S&P 500

Recent Price 76.41 52 Wk Range 76.41 - 46.38

Yield Nil 12-Mo. P/E 44.4

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) 5- Fair Value 108.00 Risk MEDIUM Earn/Div Rank B
Technical Evaluation: BULLISH since 05/97 Rel. Strength Rank (1 Lowest - 99 Highest) 84 Insider Activity Neutral

Overview 30-JUN-97

Sales should grow nearly 60% in FY 97 (Jul.). CSCO is benefiting from its position of offering the industry's most comprehensive line of switching products, and of being chosen increasingly by customers looking for a single vendor able to provide complete end-to-end networking solutions. Demand for switches is being led by the need for increased bandwidth among corporate users. In addition, Cisco's acquisition strategy has given it a strong, broad-based product line, including its July 1996 acquisition of StrataCom (STRM), providing exposure to Frame Relay and ATM technologies used in WANs. Gross margin pressures are expected to continue, as the product mix shifts to less profitable low-end routers, switching and access products. STRM's products also carry lower margins than CSCO's. Operating expenses will continue to increase sharply, as CSCO builds its sales and marketing infrastructure and invests heavily in R&D. EPS of $2.07 are estimated for FY 97, excluding non-recurring items, and we project $2.80 for FY 98.

Valuation 30-JUN-97

We continue to recommend buying Cisco shares in light of increasing evidence that Cisco's strong market position remains intact. Red flags of caution were raised earlier this year when management announced plans to slow its rate of hiring during the third quarter, indicating that sales growth was also expected to slow. Further concerns have been raised over greater competition coming from recent merger proposals to combine 3COM and U.S. Robotics, and Ascend Communications and Cascade. Nevertheless, CSCO remains the dominant vendor in the still growing data networking industry, and with its shares trading at a price/earnings multiple that represents a significant discount from its long term earnings growth rate, we recommend purchase.

Key Stock Statistics

Fiscal Year Ending Jul. 31

Dividend Data: No cash dividends have been paid. Five two-for-one stock splits were effected between 1991 and 1996.

Business Summary 30-JUN-97

Cisco Systems is the world's largest supplier of high-performance computer internetworking systems. Its routers and other communication products connect and manage local and wide area networks (LANs and WANs) that employ a variety of protocols, media interfaces, network topologies and cabling systems, enabling customers to connect different computer networks using different hardware and software across offices, countries and continents.

Key to Cisco's growth is its position as the provider offering the industry's broadest line of networking products. This is critical, as customers prefer complete end-to-end networking solutions. Demand for switches is being led by the need for greater bandwidth by corporate users--Cisco dominates in this market. However, the planned acquisition by Ascend Communications of Cascade Communications would sell most of the major networking products for regional telephone companies and Internet-service providers--another attractive market.

Cisco's product family includes backbone and remote access routers, LAN and asynchronous transfer mode (ATM) switches, dial-up access servers and network management software. High-performance, intelligent routers interconnect networks using different protocols and media. Access routers extend the network to regional sales groups, small satellite offices and individual telecommuters. All products support multiprotocol multiple media connectivity in multivendor environments. CSCO's Internetwork Operating System (IOS) provides a common software platform across networks.

To answer criticisms that routers create bottlenecks in the Internet backbone, the network core, Cisco is introducing its Gigabit Switch Router (GSR). Targeted at the Internet-service provider market, the GSR will compete against Ascend's high-speed router, GRF. CSCO claims its GSR supports several hundred thousand routes, while the GRF supports about 150,000. With field trials scheduled for the summer of 1997, the GSR should be available in the fall. Another key new product offering is CSCO's 3800 multiservice access concentrator, which integrates switched voice, multiprotocol data and routing over Frame Relay and ATM.

Cisco has employed an active acquisition strategy, making many small acquisitions in recent years as well as acquiring some key technologies. The largest was the July 1996 acquisition of StrataCom Inc., a leading maker of high speed ATM and Frame Relay switching technologies, in a $4 billion stock deal. In 1995, CSCO purchases included Grand Junction Networks; Combinet; and Lightstream Corp. (ATM switching technology).

Capitalization

Long Term Debt: None (4/97).
Minority Interest: $41,230,000.
Options: To purchase 69,089,000 shs. at $0.01 to $55.88 ea. (7/96).

Curr. Ratio	2.8	2.9	2.5	2.2	3.2	5.4	5.9	1.8	2.6	NA
% LT Debt of Cap.	NM	Nil	Nil	Nil	Nil	Nil	0.2	2.7	Nil	Nil
% Net Inc.of Revs.	22.3	21.3	25.3	26.5	24.8	23.6	19.9	15.1	7.1	5.6
% Ret. on Assets	32.5	30.0	38.2	37.0	34.7	36.5	23.2	39.2	14.0	19.1
% Ret. on Equity	41.7	37.8	47.6	47.2	44.4	43.9	34.8	78.9	23.8	86.5

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--170 W. Tasman Drive, San Jose, CA 95134-1706. Tel--(408) 526-4000. Website--http://www.cisco.com Chrmn--J. P. Morgridge. Vice Chrmn--D. T. Valentine. Pres & CEO--J. Chambers. CFO, VP-Fin, Secy & Investor Contact--L. R. Carter. Dirs-- J. T. Chambers, M. S. Frankel, J. F. Gibbons, E. R. Kozer, R. M. Moley, J. P. Morgridge, R. L. Puette, M. Son, D. T. Valentine, S. West. Transfer Agent & Registrar--First National Bank of Boston. Incorporated--in California in 1984. Empl-- 10,451. S&P Analyst: Megan Graham Hackett

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997