Last week, Cisco Systems Inc. (NASDAQ:CSCO) has reported its third quarter results, which were better than expectations. Revenue rose from $12.07 billion to over $12.15 billion, which is much lower than Cisco’s guidance of between $12.50-12.75 billion, even higher than analysts’ estimates.
The earnings from Cisco comes at a particularly critical time, as the company is about to see the handover of the position of chairman on board. John Chambers will hand over the ‘baton’ to Chuck Robbins In July. It is hoped that Mr. Robbins will continue the momentum of fiscal consolidation and the company’s future projects, consisting of home automation solutions and the Internet of Things (IoT). Tech analysts have welcomed the ‘changeover’, saying that Mr. Chambers was becoming a bit too headstrong and was at the helm for a long time.
Even though Cisco has a strong presence in the market in terms of its data networks, assuming that it is an aggressive innovator, the company needs to continue to keep it evolving because the tech industry is evolving at an even faster rate. Hence, it can be difficult to catch up with it.
This leads to the question: Is Cisco’s stock worth buying? No doubt that the company has a strong market share in switches, routing, data center network, but not so much at IP telephony and Wireless LAN. The challenges exist for the company in the market, as some rivals are competitive enough to steal the limelight.
Juniper Networks Inc., while not a threat without trouble, has managed to steal away Cisco’s dominance. Cisco’s market share for switches declined from over 65% to around 57%, whereas Jupiter’s switches market share rose from less than 2% to 3%. Even more significant is that Cisco’s market share for data center hardware has fallen from less than 59% to over 47%, whereas Juniper’s grew from 2.1 to 3%.
Cisco Systems also has to deal with Huawei in the Asian market, whose market share has grown from 7% to less than 13%. Here is the positive aspect though. Juniper and Huawei represent a sort of a fly that only needs some swatting from stealing market share here and there, though Huawei will be a bit of a tough proposition, though the Asian company looks solely to focus on the Asian markets for now, with little plans to expand in the US market.
The only near term challenge is that the company has to decide as to whether it wants to make a big shift to the software territory and face the risk of their hardware market becoming cannibalized. The SDN market is expected to grow to over $35 billion by 2018, so Cisco has to thread a fine line here from now then, so a decision must be made within this year.
No comments:
Post a Comment