The out-and-out disasters
Another thing to keep in mind when deciding how to play this trend is staying power. If there’s a price war afoot in high-tech routers and switches, Cisco Systems, Inc. (NASDAQ:CSCO), with its beefy 22.7% operating margin, is much better positioned to depressed profit margin losses and survive, than is Juniper Networks, Inc. (NYSE:JNPR) and its modest 9.4% margin.
Rivals farther down the profitability ladder could be in for an even worse ride. Here you need to keep your eye on Alcatel Lucent SA (ADR) (NYSE:ALU), which currently ekes out a living on a 0.9% operating margin (and even that may be overstating the case, because Alcatel is currently free cash flow-negative), and on Ciena Corporation (NASDAQ:CIEN) as well. In addition to burning cash, Ciena also sports negative operating margins.
When you get right down to it, I kind of suspect that FBR’s fears about Cisco Systems, Inc. (NASDAQ:CSCO) are overblown. With strong free cash flow and a deep cash cushion — $30 billion net of debt — Cisco is a corporate fortress, and probably able to handle whatever troubles Mr. Market sends at it. Juniper, Alcatel, and Ciena, on the other hand … well, let’s just say I’m less confident in their chances, and leave it at that.
The article This Just In: Upgrades and Downgrades originally appeared on Fool.com and is written by Rich Smith.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems.
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