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September 15, 2010 12:23 am
The leading maker of networking gear said it would pay its first dividend, of between 1 per cent and 2 per cent, by the end of its fiscal year in July.
The amount to be paid out would depend on a couple of tax issues, John Chambers, chief executive, said on Tuesday. First, is the tax rate on dividends, which could be changed by Congress. Second, is the rate payable on cash repatriated by companies from overseas. Cisco holds about $30bn of its $40bn in cash overseas, and Mr Chambers said he would bring all of that back to the US if Congress agreed to a tax rate of less than 10 per cent on the funds movement.
“We’re coming to a ‘Y’ in the road,” Mr Chambers said. “I’m going to spend the money overseas if we can’t spend it here.”
Microsoft also holds most of its $37bn of cash overseas, leaving it less financial flexibility to maintain its current pace of share buy-backs and dividend payments, according to Heather Bellini, an analyst at International Strategy and Investment Group.
Mr Chambers said Cisco would commit to increased US hiring if it helped speed legislation to ease the repatriation of overseas funds which, he said, would help a national economy that he described as “bumpy”. European and Asian markets were performing better than expected, he said.
Cisco executives stuck to projections of average yearly revenue growth of between 12 per cent and 17 per cent – well ahead of the past few years’ results – for the next three to five years.
They said the company’s strong suit in networking switches and routers would produce a smaller share of Cisco sales with the company making significant headway in the market for servers for use in corporate data centres, where it is taking on incumbents IBM and Hewlett-Packard. HP, meanwhile, is competing more directly with Cisco by selling its own switches.
Mr Chambers emphasised Cisco’s strengths in not paying more than a 30 per cent premium for acquisitions and integrating target companies’ product lines and employees, a thinly veiled criticism of HP.
HP has agreed to pay more than $1bn for two companies – network security concern ArcSight and high-end storage maker 3Par – in as many weeks. Both came with pricetags of more than 50 per cent over pre-takeover stock levels.
Mr Chambers said morale was high at Cisco as was investment in research and development, implicitly contrasting his company with criticisms by HP staffers of their own employer.
HP’s buying spree accelerated after the forced departure of Mark Hurd, the former chief executive, who has joined database and server maker Oracle.
Mr Chambers said he was seeking new ways to ally with Oracle, observing that Mr Hurd’s move and Oracle’s increased plays in hardware made it a significant rival to HP, while its database business competes with IBM.
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