Boston, MA 03/26/2014 (wallstreetpr) – The new $1 billion investment in cloud computing disclosed by Cisco Systems, Inc. (NASDAQ:CSCO) is part of the response by corporate America and companies around the world to secure their data in the face of the spying activities of the NSA. The need for data security has created opportunities that Cisco wants to leverage.
The Cisco Intercloud
Cisco plans to build data centers and then create a top class alliance of large technology and telecommunications companies. Cisco hopes to solve the problem created by Google Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN) running their proprietary cloud service offerings called Google Compute Engine and Amazon Web Services respectively. Therefore, Cisco has chosen the popular OpenStack open-source cloud-computing platform that is managed by the OpenStack Foundation with the participation of more than 200 companies including Cisco, International Business Machines Corp. (NYSE:IBM), AT&T Inc. (NYSE:T), and Hewlett-Packard Company (NYSE:HPQ).
The Intercloud will let companies run their software on both private and public clouds. The NSA revelations have made companies jittery about the movement of their data via external networks. The Intercloud will try to win these potential clients over with its promise of security and reliability.
The Financial Picture
Analysts expect Cisco Systems, Inc. (NASDAQ:CSCO)’s revenues to decline by about 4.5% (or $2.2 billion) this fiscal. The billion dollar investment in cloud computing obviously won’t pay Cisco large returns in the short term. It’s an investment for the future.
Cisco has taken on a new debt amounting to $8 billion in late February to (a) repay outstanding unsecured senior notes that mature this year, (b) to do share buybacks, and (c) to pay dividends.
Although, Cisco has more than $40.0 billion in cash, most of that cash is held by Cisco’s foreign subsidiaries. Cisco — like other large American companies — is loath to bring the money in as that will involve paying large taxes to the government. Cisco is happy to just borrow money at home and that’s what it did. Cisco has been among the leaders in returning money to shareholders via dividends and share buybacks and it plans to continue doing both.
So the Cisco Systems, Inc. (NASDAQ:CSCO) story will continue to remain one of boringly consistent performance in the stock market and that is not necessarily ‘bad news.’ The stock will give decent — if not spectacular — returns to shareholders.
