Letter published in Barron's 10/23/06 issue

To the Editor:

For those contemplating an investment in Cisco ("Cisco's Bundles of Joy," Oct. 9), bear in mind that Cisco spent the bulk of its profits the past 12 years to buy back 1.5 billion shares issued to employees in lieu of cash compensation.

Stock-option exercises dilute shareholders. Rather than shrink the share count, as Cisco's CFO claims, Cisco's buybacks merely stemmed the tide of dilution. Stock repurchases that combat dilution are a roundabout way of paying compensation.

Cisco employees hold another 1.4 billion stock options. A 22% ownership dilution threatens-not counting any future option grants-unless the company spends the next decade's profits on share repurchases. Cisco shareholders are on a treadmill to nowhere.

Albert J. Meyer