Cisco: share buyback focus - FT.com Investors get a touch jumpy when Cisco pays big money for an acquisition. It has spent close to $17bn on deals in the past decade. There have been some bad buys, too, notoriously the $600m for video camera maker Pure Digital, shut down two years later. So news that Cisco would pay $5bn, or 20 times trailing net income, for video distribution software company NDS knocked a few per cent off Cisco's share price. Although Cisco generated $9bn in free cash flow last year, $5bn still represents a big chunk of capital. Many acquisitions fail. But for most tech companies they are an unavoidable risk as competition and technical advances relentlessly drive down prices and margins on legacy products. Witness the recent margin pressure in Cisco's core switching business. So rather than focus on deals, if investors want to worry about the way Cisco allocates capital, they should look at its share buyback programmes instead. Cisco has spent $72bn here over the last 10 fiscal years, dwarfing the spending on acquisitions. Nearly 3.5bn shares have been bought back. Notably, though, the share count has fallen by only 1.6bn shares. The rest of the shares bought went almost entirely to offset share issuance for employee compensation. Cisco did also take in about $20bn in cash over those years from staff exercising their options. But netting that out, $52bn was spent in all - about $32 for every one-share reduction in the diluted count. Cisco's share price averaged $21 over those years. There is a tax benefit associated with stock compensation, which makes up some of this difference. The basic point remains, however. If Cisco has a big, risky commitment to buying other companies, its commitment to buying its own shares is bigger still, and some of the cash spent goes to employees, not shareholders.