Ciscos best period was the y2k period firms in all

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Cisco’s best period was the Y2K period. Firms in all industries were upgrading systems and seeking better control over their entire information technology structure. Earnings per share during the Y2K era grew at over 35% annually (Value Line, 2010). While slightly slower than during the browser era, investors recognized the central role Cisco played in the technology sector and rewarded it with a P/E ratio well above 100 (Business & Company Resource Center, 2010). During the post-Y2K era, earnings dropped by over 50%, even though revenues increased (Value Line, 2010). The firm had invested heavily in Internet protocol network equipment, whose sales dropped sharply during the technology bust (Mergent Online, 2010). The stock price dropped sharply, matching the decline in earnings. The post-9/11 era was tough for Cisco as it looked to diversity its product line and rebuild cash flow. By 2004 during the outsourcing era, Cisco had rebounded enough to resume its acquisition strategy (Hoover’s Online, 2010). Stock investors responded positively to Cisco’s strategy and increased the P/E ratio to about 30, giving Cisco its second best performing era (Value Line, 2010). Cisco’s upward trend continued during the mobile/wireless era, albeit at slower growth rates. Its P/E ratio fell by 1/3 as its stock price trended upward slightly (Value Line, 2010). Overall, Cisco has learned from its mistakes during the post-Y2K era and maintains an acquisition strategy that does not deplete its cash.
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Page 90 Academy of Accounting and Financial Studies Journal, Volume 15, Number 4, 2011 3Com (COMS) is the upstart networking firm in the industry who tries to play with the big players. With a market capitalization that usually ranges from 1% to 3% of Cisco’s market capitalization, 3Com spends as if it is the biggest player in town including naming Candlestick Park in San Francisco 3Com Park from 1995 to 2000 (Value Line, 2010). Robert Metcalfe, the inventor of the Ethernet for Xerox, founded 3Com. Using the Ethernet as its base technology, 3Com developed ancillary hardware products (Hoover’s Database, 2010). Of the five firms in the study, 3Com had the lowest performance in the browser and Y2K eras. Operating costs fluctuated as the firm tried to integrate all of the firms it had acquired (Value Line, 2010). In particular, 3Com purchased U.S. Robotics and the Palm Pilot PDA in 1997. Integrating the larger U.S. Robotics was problematic and resulted in layoffs, inventory problems, negative press, and finally, one of the largest shareholder lawsuits and settlements in history (Hoover’s Online, 2010). During the post-Y2K era, the stock price plummeted from above $100 per share to under $10 per share (Value Line, 2010). In an effort to raise cash, 3Com spun-off Palm in 2000 (Business & Company Research Center, 2010). The post-9/11 era saw 3Com refocus its business away from consumers and to business along with reducing 30% of its workforce (Hoover’s Online, 2010). Investors responded positively to the firm’s actions and rewarded it with an increasing stock price, albeit modestly (Value Line, 2010). This is especially surprising considering that 3Com posted negative earnings from 2001 through 2006.
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  • Spring '12
  • Kushal Kanwar
  • Dot-com bubble, Stock market bubble, Financial Studies Journal

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