Prior to Tuesday, there was much speculation about the earth-shattering breakthrough that Cisco Systems (NASDAQ:CSCO) was going to unveil. Investors were on pins and needles, not sure what to expect, but certain it was going to make the stock a must-have. As the company's spokespeople put it, it would "forever change the internet and its impact on consumers, businesses and government." Wow - strong words indeed.

What investors got, however, was something stunningly-less dramatic. The stock closed exactly flat for the day, as the announcement was a complete dud.

What was the product at the heart of the non-event, and why? Better still, what can investors (and Cisco for that matter) learn from it? Keep reading - this is something you'll want to keep in mind the next time Cisco is talking itself up.

IN PICTURES: 7 Forehead-Slapping Stock Blunders


A Technological Non-Breakthrough
So what was the game-changing invention? A better router.

Oh, don't get me wrong - it is a better router, able to send digital information over the internet at a pace of 322 terabits per second. The company says that's about 12 times faster than any other router can operate right now; a '100 gigabyte' router, capable of sending - via the web - a digital copy of every movie ever made in four minutes.

It's nothing you or I would be interested in hooking up to our computers though, to be sure. This is telecom/telecable-level technology for managing network traffic, with a price tag of about $90,000 each, but perhaps worth it to those who need it.

So why didn't the stock budge? Two reasons: The first reason is that nobody cares because nobody knows what it means anyway; the second reason is because despite Cisco's implication that it was the first to reach the technological milestone, it's actually already been done. The first reason is self-explanatory, but the second might need some going over.

Beat Them to the Punch
Sorry Cisco, but you're not going to blow anybody's mind with your 'breakthrough'. Why? Because Verizon (NYSW:VZ) already did it. In partnership with competing router manufacturer Juniper Networks (NASDAQ:JNPR), NEC Corporation and Finisar (NASDAQ:FNSR), Verizon successfully delivered data at 100G speed using a fiber-optic connection.

Wait - it gets even more unimpressive.

Cisco's equipment itself won't actually be released until the third quarter of this year, give or take. In the meantime, Google (NASDAQ:GOOG) has announced its intention do develop its own high-speed network. They'll be small in scale initially, you have to assume the company's not just doing it as a hobby.

Beware of Google
So what? There is some chatter that Google could actually utilize the new Cisco router to power the network. Possibly. On the other hand, Google said nothing about designing its own cell phone when its Android smartphone operating system was launched a little over a year ago. This means that Google clearly isn't afraid to develop its own hardware, which may be a far more feasible logistical option if its networks start to sprout and grow. Or, the network may never get off the ground. Either way, it's not like Cisco has a guaranteed new customer lined up.

Bottom Line
Even putting aside all the competition that Cisco is facing with Juniper before the new router officially launches, the hype is still mostly unmerited. How many $90,000 routers does the telco industry need? Cisco has sold only 5000 of the prior-generation routers over a period of years. Generously assuming the company will be able to sell the same number of the newer routers in one year (which would theoretically be unnecessary if the things can offer far greater capacity), that's still only $450 million in potential sales - and that's a very aggressive possibility.

Not that $450 million is chump change, but considering Cisco posts annual revenue in the $30-$40 billion range, the company is lucky that the market let the stock off the hook with only a flat performance for the day. Not only did the announcement not "forever change the internet", it used up a great deal of investor goodwill by inflating the stock to unjustified levels. (For more, check out Stock Analysts: Should You Listen?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center