Cisco Systems (CSCO) CEO John Chambers isn't talking turnaround--but the market certainly is. The maker of networking gear posted third-quarter sales of $4.8 billion, unchanged from the quarter before.
The company's $729 million in profits, marking a 10% quarter-over-quarter growth, were a pleasant surprise. Cost cuts fueled the jump.
Another ho-hum earnings report? Far from it, according to investors who on May 8 drove Cisco's stock up 24%, to $16.27. That surge has added more than $20 billion to Cisco's Wall Street valuation, and helped jump-start the market as a whole.
Chambers, however, is playing down any talk of a rebound. He cites dismal spending among telecom outfits, which once made up nearly half of Cisco's business. The capital expenditures of such companies have been trimmed by as much as a further 25% for the year, say analysts. "This was obviously a brutal first half of year [in U.S. telecom]," says Chambers. Still, it appears that any glimmer of good news goes a long way with investors these days. In a move long dreaded by its rivals, Southwest Airlines (LUV) is launching its first nonstop, transcontinental flight on Sept. 15. The low-fare carrier, which in 1998 briefly experimented with transcon service, will fly from Baltimore to Los Angeles at an introductory fare of $99. While Southwest is primarily a short-hop carrier, it has been flying longer trips in the past few years to counteract the higher per-trip taxes now being levied on passengers. The transcontinental effort comes at a bad time for the biggest airlines, which have been struggling to raise fares and return to profitability. Microsoft (MSFT) agreed on May 7 to its second-largest acquisition ever, with a deal to buy Danish software maker Navision for $1.3 billion in cash and stock. The acquisition will give Microsoft a European launching pad for its growing business of selling management software. It also increases the chance that Microsoft will end up competing with longtime partners such as SAP and Siebel Systems, which provide business software for large companies. Microsoft says it has no plans to go after that market, but plans instead to target small to midsize companies with software from Navision and an earlier acquisition, Great Plains Software. Still, analysts expect the lines between those markets to become blurred. Consumer and forest products giant Georgia-Pacific (GP) is splitting into two separate, publicly traded companies. One will keep the Georgia-Pacific name and focus on building products. A second one, yet to be named, will consist of GP's packaging and consumer-products division--whose brands include Angel Soft, Brawny, and Dixie. It will be spun off in the third quarter of 2002 through an initial public offering that is expected to raise at least $1 billion. The IPO proceeds will go to reducing debt. Georgia-Pacific carries about $13 billion in debt, mostly stemming from the purchase of Fort James in November, 2000. After the split, GP will have $2.5 billion to $2.7 billion in debt, while the spin-off will have $8.1 billion to $8.8 billion. The cola wars are taking on a decidedly new flavor. On May 8, PepsiCo said it would launch a blue, berry-flavored version of its flagship Pepsi brand. Not to be outdone, Coca-Cola is rolling out Vanilla Coke. Coke and Pepsi are desperate to jump-start cola growth. Although the category accounts for roughly half of all U.S. soda sales, it has turned flat in recent years as younger consumers opt for water, juice, and other more healthful drinks. While neither Pepsi Blue nor Vanilla Coke is expected to garner more than 1% of soda sales, analysts say that if the new entrants help stem the erosion in the cola category they'll have done their job. In a bid to attract top scientists and improve productivity, Swiss drugmaker Novartis (NVS) will move its global research and development activities to the U.S. The creation of the $250 million Novartis Institute for Biomedical Research Inc. (NIBRI) in Cambridge, Mass., is an acknowledgment that America is still the center of world-class science. It is also the first step in Novartis' plans to restructure R&D, including the appointment of scientists to top management. The NIBRI will be run by Dr. Mark Fishman, a Harvard University professor and head of cardiology at Massachusetts General Hospital. Researchers will focus on new drugs for diabetes, cardiovascular, and infectious diseases. -- KPMG Consulting has offered to buy 23 of Andersen's consulting units for $284 million.
-- The SEC will begin requiring foreign companies to file documents electronically.
-- EBay and VeriSign inked a services-and-marketing deal for an undisclosed amount. On May 8, Dynegy (DYN) shares fell 9%, to $11.15, after the Securities & Exchange Commission expanded its inquiry of the company into a formal investigation. The SEC is looking at a multiyear natural-gas transaction that cut Dynegy's taxes in 2001. The Houston energy trader is cooperating with the SEC.