By Executive MBA students Marc Simony, Sherrie Zollinger, Kellie Teelander, Casey Hirschman, Fayda Khalek and Dewan Simon
What do you do when you have $40 billion in the bank, net profits of $7.7 billion, an average annual unlevered free cash flow of around $9 billion, the world economy in shambles, and you need to continue to grow because stagnation will kill your stock price?
At Cisco Systems, Inc. (NASDAQ: CSCO) you announce a $10 billion share buyback to protect your stock price, and you try to maximize your sunk costs and IP (pun intended; both Intellectual Property and Internet Protocol). Cisco has a plethora of business units, but most are geared toward supporting packet flow over Cisco’s core business — networking infrastructure. Networking infrastructure, in this case, represents a large portion the sunk costs, because sold gear does not return any post-sale revenue scaled to the use and value it provides the purchaser.