AP
Cisco to Buy Back $10B in Stock
Friday November 16, 8:04 pm ET
By Jordan Robertson, AP Technology Writer
Cisco Boosts Stock Buyback Program by $10 Billion to Total $62 Billion


SAN FRANCISCO (AP) -- Cisco Systems Inc. has boosted its stock buyback effort by $10 billion, a sign the Internet networking supplier still believes its shares are undervalued.

The move, announced Friday, is a way for the San Jose-based company to increase the value of remaining investors' stakes, counter the effect of employees exercising stock options and protect its financial image.

When stock options are exercised, it adds shares to the market, while a buyback removes them and boosts the value of each remaining shareholder's stake.

Cisco's decision highlights the dilemma many companies face in trying to reduce the dilution caused by generous employee stock option plans.

Cisco, the world's largest maker of Internet routers and switches, has been profiting from steadily rising demand for more Internet bandwidth and sophisticated networking gear to handle an influx of voice, video and data content on the Web.

Since Cisco launched its stock buyback program in September 2001, it has been on a tear and seeking for ways to spend its cash horde -- currently $24.7 billion -- and return that value to shareholders.

The company has bought back 2.3 billion shares for a total of $46.2 billion.

Friday's announcement brings the total amount Cisco's board of directors has authorized for buying back stock to $62 billion.

Cisco's total share count has declined by only 1.2 billion, from 7.3 billion outstanding shares in 2001 to 6.1 billion at the end of October, however. That's mostly a result of employees exercising options on 1.15 billion shares over the same period, the company said Friday. Some of the increase came from funding acquisitions by issuing stock, Cisco said.

The company emphasized that the decline in the number of shares outstanding has been substantial.

As employees cash out stock options -- which are a common way Silicon Valley companies lure talented workers -- the total number of shares on the market goes up, reducing the stake held by existing investors and making the company look less profitable on an earnings-per-share basis.

Investors have applauded the company's strategy. Cisco's share price has more than doubled since the buyback program began, jumping from around $14 to around $30 today and creating $80 billion in shareholder wealth.

The stock rose 64 cents to $29.94 after the announcement Friday.

The company has been right in the past about its stock being undervalued. Cisco said the average price of the 2.3 billion shares it's bought back since 2001 was $19.89, $10 less than the level they're trading at today.