Cisco Systems (8/31 @ 21.85-21.90)

Fiber-Optic & High Speed Broadband

• The major trend in home entertainment has been video on demand and digital recording technologies. In the future household, viewers will be able to download full-length DVD quality movies and shows on demand and quickly and television shows will become interactive. In order for all this technology to become a reality, network infrastructure and Internet infrastructure needs to be upgraded. The industry leader in Internet infrastructure technology is Cisco Systems.

• The corporate standard across US companies is Cisco equipment. IT departments have few options when it comes to network purchases. Despite competitors like Juniper, Cisco has virtually a monopoly in this business.

• Cable companies and large Telecom’s are scrambling to provide end users with this technology and to beat each other to market. Most noticeable is Verizon, which is making a large bet on fiber to the home. Industry insiders see large demand and potential in the FiOS business. Although cable and telecom represent attractive potential investments, the competitiveness in the marketplace will create a winner and loser, whereas Cisco should see benefits no matter who wins the battle.

• Mobile video is another major trend; of note is the Apple release of an IPOD that will now be able to download movies and television shows in a portable device. This will further constrain existing bandwidth capacity and call for upgrades to the infrastructure.

• Cisco is also a large cap stock and positioned for any rotation from small cap to large cap stocks. Should the economy take a turn for the worse, large caps should be better positioned.

• The tape is showing some major institutional interest with an unbelievable 90 blocks of 100,000 shares trading in one day. Large numbers of blocks have continued to trade since that time. As of 6/30, Bill Miller of Legg Masson value fund had 1.24% of his net assets invested in Cisco.

• Cisco giveth and Cisco taketh., many investors became millionaires overnight and loss just as much in this high flying internet stock in the 90’s. Many investors probably assume a once bitten, twice shy attitude regarding this stock and further price appreciation could fuel these investors to get off the sidelines and become believers.

• The Japanese economy may or may not be slowing, however capital expenditure by corporations has been rising. A major portion of Japanese GDP comes from technology-based companies.