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Cisco Goes Top Shelf

While Cisco Systems Inc. (Nasdaq: CSCO) has preferred to keep the details of its involvement with Andiamo Systems Inc. its in-house SAN switch "startup" – as utterly clandestine as possible, it's now having to come clean about how it's funding the project (see Cisco Alters Andiamo Accounting).

Cisco's hand was forced because of post-Enron regulations designed to provide investors with more information about off-balance-sheet investments. I think Cisco was shrouding Andiamo in secrecy because it wanted to keep its competitors (as opposed to its investors) in the dark as much as possible.

But now more of the gato is out of the sacchetto. The upshot: Cisco has clearly been committed to pouring major bucks into this.

For those of you who might have thought Andiamo was a side project, think again. Cisco has made no secret that it expects to reach the No. 1 spot in the Fibre Channel switch market – and quickly. It's now apparent that Cisco is putting its money where its mouth is.

Cisco says it will now account for stock options granted to Andiamo employees as operating expenses. It will take a $200 million to $500 million charge to account for those options for the period between April 2001 and July 2003. It's a variable range, because Cisco is basing the eventual purchase price of Andiamo on a somewhat arcane formula tied to how many Fibre Channel switches it can sell in a three-month period in the next year or so.

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