I’m planning to buy some new call options in…

I’m planning to buy some new call options in…

Last week, I read a fascinating report predicting that  Internet traffic would quadruple between now and 2015 which got a lot of  press — 286 hits on the topic in Google News right now:

Cisco Predicts 15 Billion Network Devices in 2015 PCWorld – Grant Gross – 4 days ago Internet traffic will increase by 200 exabytes between 2014 and 2015,  Cisco said. Global Internet traffic in 2010 was about 20.2 exabytes per  month… all 286 news articles »


all 286 news articles »

Now to be sure, I’m long Cisco and spent the weekend actively pricing  several call option strategies for Cisco.

And nobody’s been a bigger bull or found more recent winners for the  growth on the core Internet traffic than yours truly over the last  couple years especially.  But I also love to “flip” things which means  being skeptical especially when something confirms your own analysis, so  I went back and checked on Cisco’s track record on these predictions  from years past.   And I was shocked at what I found, as you’ll see.

Here’s what Cisco was predicting this same kind of report back in 2006:

After a brief mid-decade slowdown, IP traffic will nearly  double every two years through 2011. Total IP traffic will nearly  quadruple in the four-year period from 2007 to 2011. Driven by  high-definition video and high-speed broadband penetration, consumer IP  traffic will bolster the overall IP growth rate so that it sustains a  fairly steady growth rate through 2011, growing at a compound annual  growth rate (CAGR) of 46 percent and nearly quadrupling the monthly  traffic run rate from 2007 to 2011.

And here’s what Cisco said about Internet traffic in their most recent report:

Global mobile data traffic grew 2.6-fold in 2010, nearly tripling for the third year in a row.

Yup, back in 2006, Cisco in this same report was looking for a 46%  annual growth rate in Internet traffic in the coming five years…when  in reality it turned out that the annual growth rate was closer to 300%.

Cisco was looking for the monthly traffic run rate to increase fourfold from 2007 to 2011…it will be more like fifteenfold.

In 2007, Cisco wrote: Internet video will account for 30 percent of all consumer Internet traffic in 2011.

In 2011, Cisco updated that: Internet video was 40 percent of consumer Internet traffic in 2010 and will reach 50 percent by year-end 2012.

In 2006: Together, traffic from 3.5G and WiMax will make up over half of all mobile data traffic by 2011.

In 2011: No mention of 3.5G or WiMax. All meaningful “mobile data traffic” is 3.5G or higher by the standards Cisco’s talking about back then.

In 2006: According to this forecast, global IP traffic in 2007  stands at more than 6 exabytes per month, more than quadrupling to reach  29 exabytes per month in 2011.

In 2011: According to this forecast, global IP traffic in 2010  stands at 20.2 exabytes per month and quadruples by 2015, to reach 80.5  exabytes per month.

Fast forward to a report in 2008: By year-end 2013, the equivalent of 10 billion DVDs will cross the Internet each month.

In 2011: In 2015, the gigabyte equivalent of all movies ever made will cross global IP networks every 5 minutes.

Guys, do you see a pattern here?  Cisco’s own optimistic industry  analysis of the growth of the Internet and the  apps/games/movies/work/etc that ride on top of it are, even as  optimistic as they seem, ALWAYS way too pessimistic.

Internet/app/smartphone/tablet/cloud growth are going to be bigger  than even Cisco realizes.  I’ve spent the last two years analyzing this  industry and pinpointing the very best ways to play this trend,  including waiting for times like this to start building our Cisco  positions for the next few years as the cycle kicks back in for them  once again.

I’m planning to buy some new call options in Cisco this week.