Cisco CEO John Chambers had perfect timing executing his insider Cisco stock trades

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Cisco CEO John Chambers had perfect timing executing his insider Cisco stock trades
Thu, 05/13/10 - 9:47pm Add your comment

2 months ago I blogged that Cisco CEO John Chambers sold $45 million of his Cisco stock even though only a month before Chambers had previously sold $52.2 million in Cisco stock, for a combined 2 month total of $97.2 million.

Curiously, during Cisco's Q3 2010 earnings call, Chambers stated, "In summary, our game plan for handling the economic downturns hit on all cylinders. Q3 results are the proof points and was, in my opinion, the strongest across-the-board quarter in our history."

So yesterday John Chambers was bragging that Cisco's Q3 was the strongest in Cisco's history, yet tellingly (at least in my opinion), the earliest expiration date on the $52.2 million in Cisco stock options that Chambers sold 3 months ago?

Tomorrow, Friday, May 14, 2010.

The earliest expiration date on the $45 million in Cisco stock options Chambers sold 2 months ago?

August 21, 2010.

Interestingly, Chambers executed his $97.2 million in insider Cisco stock trades by using 10b5-1 automatic trading plans. According to Wikipedia, the U.S. Securities and Exchange Commission is investigating why insider stock trades executed using 10b5-1 automatic trading plans appear to outperform the market.

Here's why in my personal opinion I find Chambers' $97.2 million in insider stock trades so curious:

2 years ago on May 8, 2008, I called-out Cisco's 3rd Quarter 2008 accounts receivable issue:

Cisco's third quarter accounts receivable explained

Below is a 12-year perspective on previous Cisco Q3 FY net sales increases/decreases (in millions), accounts receivable increases/decreases (in millions), as well as accounts receivable DSO - days sales outstanding:

Cisco Q3 FY	2010	2009	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999
Net Sales increase or (decrease) in millions	$2,206	(-$1,629)	$925	$1,544	$1,135	$567	$1,002	(-$204)	$94	(-$191)	$1,772	$963
Accounts Receivable increase or (decrease) in millions	$1,686	(-$1,791)	$945	$258	$739	$701	$383	$167	(-$993)	$61	$647	$2
DSO days sales outstanding	39	27	39	33	36	33	27	23	19	38	36	40

Source: U.S. Securities and Exchange Commission

Interestingly, Cisco's stock price closed at $25.70 on the day I called-out Cisco's Q3 2008 accounts receivable issue and from thereon, it was pretty much a downhill slide for both Cisco's revenue and stock price for almost an entire year:

2 Year Cisco Stock Chart

Source: Yahoo! Finance

Then on February 4, 2010 I called-out Cisco's 2nd Quarter 2010 accounts receivable issue:

Cisco's F2Q10 accounts receivable soar $1.34 billion year over year!

"Year over year (YOY), Cisco's accounts receivable soared by $1.344 billion, an increase that was a whopping $618 million more than Cisco's net sales increase, which was just a mere $726 million."

Within 4 days of my accounts receivable blog above, Chambers sold his first $52.2 million in Cisco stock. Less than a month later, Chambers sold another $45 million in Cisco stock, for a combined total of $97.2 million.

Earlier this week, I blogged that billions in Cisco stockholder wealth would be made or lost depending on whether Cisco achieved its F3Q10 guidance. Well, Cisco did achieve its revenue and gross margin guidance, however, Cisco failed to achieve its operating expense guidance of approximately 36.5% to 37% of revenue, coming in with an OPEX of 41.3%, see the below 12-year Cisco Q3 FY chart. Not surprisingly, Cisco's stock price closed today below its May 8, 2008 stock price close of $25.70.

Source: Yahoo! Finance

Below is a 12-year perspective on previous Cisco Q3 FY financial results:

Cisco Q3 FY	2010	2009	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999
Net Sales In millions	$10,368	$8,162	$9,791	$8,866	$7,322	$6,187	$5,620	$4,618	$4,822	$4,728	$4,919	$3,147
Gross Margin As a percentage of net sales	64%	64.1%	64.4%	63.7%	64.5%	66.8%	68.8%	70.8%	63.6%	0.069%	64.5%	65%
Operating Expenses As a percentage of net sales	41.3%	44.4%	42.5%	38.9%	42%	37.4%	41.1%	43.8%	45.5%	87.3%	49.3%	37.2%

Source: U.S. Securities and Exchange Commission

In conclusion, Cisco's stock price appears to have peaked, and in my opinion, John Chambers' demonstrated perfect timing executing his insider Cisco stock trades!

What's your take, why do you think Cisco CEO John Chambers demonstrated such perfect timing executing his insider Cisco stock trades?