Why Cisco’s Allocation for Research Is Likely to Improve in 2017

Why Cisco’s Allocation for Research Is Likely to Improve in 2017


Feb. 3 2017, Updated 7:36 a.m. ET

Cisco and peers dominate the R&D arena

Earlier in the series, we discussed Cisco’s (CSCO) expected cash repatriation and how it would fuel its M&A spree in 2017. Cisco is one of the top 20 companies that have spent the most on R&D, as the below chart shows. Samsung (SSNLF), Amazon (AMZN), Intel (INTC), Microsoft (MSFT), Apple (AAPL), Cisco Systems, and Oracle (ORCL), which spend heavily on R&D, are also among the top 20 biggest spenders on innovation.

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An increase in cloud adoption has made customers demand more command over their networks, data protection, and security infrastructure. As a result, they are likely to choose the cloud platforms that give them the most flexibility. Thus, these software companies are aiming to direct the majority of their R&D spending towards the design, deployment, and maintenance of their enterprise cloud security models. R&D is the backbone of the technology space, as it helps companies to come up with innovative ideas and technologies that give them edges over their peers.

Cash repatriation will fuel Cisco’s R&D budget

Donald Trump’s proposed protectionary policies are aimed at enhancing domestic production and repatriating offshore cash. Apart from cash repatriation to the US, Trump’s proposal to reduce the income tax rate would also provide technology companies like Cisco with the flexibility to fund growth by investing in R&D (research and development) while adhering to their usual policies of returning cash to shareholders through stock buybacks and dividends. Spending on R&D drives success in innovation and breakthrough technologies.


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