Cisco builds war chest

As the panic over the economy enters the seventh month, Cisco SystemsInc. is taking advantage of investors’ uncertainty by issuing bonds.

Onthe surface it seems absurd that a company with quarterly profitsexceeding US$1 billion, holding US$4 billion in cash should need toborrow more money. But right now, investors with billions ofdollars who want to buy stocks and if they buy government bonds, eitherin Canada or the U.S., they are investing in organizations who areborrowing like there’s no tomorrow, with no plan to pay off debt.

TheSan Jose, Calif.-based network equipment manufacturer announced thisweek it plans to sell a total of $4 billion in unsecured notes. Half ofthese will cost the company 4.95 per cent a year in interest and willbe due in 10 years. The other half will have interest rates of 5.9 percent and be due in 2039.

Cisco is in better financial shape thanother equipment makers in the field, such as Nortel Networks Corp.,currently operating under bankruptcy protection, and Alcatel-Lucent,which lost $8 billion last year.

Cisco plans to usethree-quarters of the $4 billion bond issue for “general corporatepurposes” and $500 million to repay other bonds. We’re not sure if“general corporate purposes” includes a big acquisition later thisyear, or a prediction that the recession will put the company in thered. Whatever its purpose, Cisco has something big in mind this year.

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Jim Love, Chief Content Officer, IT World Canada

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