"Video is clearly the killer app here . . ."

Yesterday afternoon Cisco Systems* gave an earnings call which underscores several major points we have discussed on this blog previously, points which are very important for investors to understand right now.

Firstly, Cisco's earnings beat analyst estimates, continuing a trend of earnings growth by bellwether companies we have pointed out previously -- a trend which defies the "Great Depression" drumbeat the media has been pounding out for several months.

More importantly, Cisco's CEO John Chambers gave some answers to analyst questions which reveal the enormity of the changes coming -- changes with huge investing significance that are being largely ignored amidst the frantic headlines about financial firms, oil prices, and recession alarms.

Indicating that the proliferation of video capabilities over the internet will be a paradigm shift with far-reaching consequences, Mr. Chambers said, "For the first time that I can remember as a CEO, you talk to other CEOs and they can actually give an advertisement for me on collaboration with TelePresence, in terms of saying: 'This is changing the way I do business,' 'This is the direction that we're going,' et cetera."

When the heads of corporations say that something is changing the way they do business, it is a fairly clear indication of something with a paradigm-shifting impact.

We have pointed out in several previous blog posts (such as this one) that the changes already beginning around computing and video are going to have serious and significant transformative effects over the next five to ten years -- ushering in changes to business and society equivalent to the changes brought about by technology between 1980 and 2000.

If you can look back in hindsight and see business opportunities and investment opportunities created during that period, then you understand that the advent of the next paradigm shift is enormously important for investors to understand. Again, this paradigm shift is still largely ignored by the short-term focused financial media and the equally short-term focused "wealth management" community.

To grasp the truly amazing capabilities being developed, take a look at the video embedded above, in which Cisco's CEO demonstrates holographic TelePresence with Martin De Beer. As Mr. Chambers said in the Q&A for yesterday's call:

"Video is clearly the killer app here, and when you think about the loads currently going on networks, these are largely downloads that are occurring today -- or one person to one person. If you begin to take concepts like TelePresence, where you have ten different locations into a single meeting -- which I do pretty regularly now -- as an example, and you begin to think about that occurring not only in the area of business, but also to the home [. . .] you begin to see our view of at least what we believe will be in loads on the networks."

This brings us to a final point that the Cisco call revealed which investors should internalize, which is the different time focus of corporations versus the short-term focus of most individuals. The changes which technologies like TelePresence will bring about are not going to happen in the next couple of weeks or even the next quarter -- these are changes which will take place over the next few years.

In our 2007 commentary, "What Hasty Investors could learn from an Ent," we discussed the importance of having the right time perspective when it comes to participating in the revenues of a business that may not realize its full potential for several years. In response to an analyst question yesterday, Mr. Chambers uttered a statement which every investor should memorize. He said, "I make no decisions by the quarter and very few by the year. I make all my decisions three, five, seven years out."

It has been pointed out that during the 1990s, there were financial crises such as the "Asian contagion," the Latin America debt crisis, and the collapse of Long Term Capital Management, but if you were to ask whether those were more important than the changes brought about by the internet, there would be no comparison.

Yesterday's Cisco call highlights the truth of that statement with regard to the importance of the big changes coming over the next several years versus the lingering financial turmoil of the moment.

* The principals of Taylor Frigon Capital Management own shares of Cisco Systems (CSCO).

For later posts dealing with the same subject, see also:

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