The New York Times has this interesting conversation with Paras Bhargava, a telecommunications equipment analyst at BMO Nesbitt Burns (based in Toronto). Unlike the cheering squad who call themselves analysts, Bhargava has a pretty balanced view on Cisco Systems.

A couple of things which caught my eye:

bq. You have to remember that John Chambers, the chief executive, worked at Wang Labs and at I.B.M. He has lived through cycles before.

To me that is a reason for being careful of what Chambers’ says. In a conversation earlier this week, a smart investor told me, “Chambers is a Wang salesman – he actually believes that the rebound is coming.” And this was a comment loaded with irony.

bq. Cisco expects revenue to grow 2 to 4 percent in the first quarter compared with the fourth quarter, in which the company reported revenue of $4.70 billion. [CRN]

A highly optmistic stance taken by a salesman? Perhaps!

bq. So while we can look at the 27% bottom-line earnings growth and say “good times!” almost every other number in Cisco’s results says anything but. Operating cash flows declined by more than 20% to $5.2 billion for the year. And let’s not forget that 2002 was a miserable year for router sales, so you can’t argue that the hurdle was set too high. [Motley Fool]

Squeezing suppliers might be good for sometime, but it is not viable over the long term, because you can rob peter to pay paul for sometime, but not all the time. I think Cisco has a massive problem and the company does not know how to deal with it. Like many other Silicon Valley firms it is failing to realize that the corporations are stuffed with gear, and software and are unlikely to spend more than necessary. This is the reality of a mature market. At 27 times sales, Cisco is simply too expensive and puny acqusitions the company is making are not good enough to add to the topline.

bq. “At the moment, the stock I would prefer here is Alcatel, for a couple of reasons. First, they can do a lot more cost cutting. They are benefitting from D.S.L., and they are very well diversified internationally in terms of service providers.”

Ironically I had done a piece on Alcatel, a few months before Red Herring shut down. Just like Wang!