The bad financial news at Cisco Systems Inc. means good news for buyers of network equipment, say two analysts who watch the industry closely.
“It’s completely a buyer’s market,” says Zeus Kerravala, senior vice-president of research at the Yankee Group.
“I would not buy anybody without having at least two or three competitors bidding.”
Since Cisco CEO John Chambers (pictured) announced earlier this month that it has to restructure, followed by the release of what for it were dismal quarterly results last week, there are questions about how badly the company been hurt, how soon it can recover and whether now is the time competitors can hack large chunks of market share away.
The answer seems to be that in the short run it’s been stung, it will take longer than two quarters and some financial juggling to make the company healthier and competitors won’t be able to push it from its perch as the world’s number one network equipment maker.
But for now, to prevent any significant loss of sales, Cisco will be dealing like never before.
Expect some of the biggest deals in the enterprise switching market, where sales were down nine per cent in the last quarter from the same period a year ago. Buyers of Cisco service provider routers might find attractive pricing as well. According to Dell’Oro Group, Cisco sales in that category have been dropping for about five years.
“Clearly they’re going to have to make some pricing concessions if their objective is the maintain market share,” said Paul Mansky, senior equity analyst for data centre infrastructure companies at Canaccord Genuity Inc.
Thanks to aggressive pricing from Hewlett-Packard Co. in closet switches, Cisco’s switching line is “pretty much an albatross right now, “ he said.
Cisco’s announced move to use more silicon in their products from Broadcom Corp. will be key to lowering prices, he added.
Kerravala agreed Cisco will have to make price concessions it’s either that or lose market share. Ownership of corporate networks is everything to the company, he argues, because it affects Cisco’s ability to sell adjacent products such as voice-over-IP, wireless LAN switches and Telepresence systems.
Cisco said Cisco Canada president Nitin Kawale wasn’t available Monday for comment on this article, but will be available later this week.
It’s not like the company is bleeding red ink. Third quarter net sales were US$10.9 billion, up five per cent over the same period a year ago. Net income in the quarter was US$1.8 billion – but that was down from US$2.2 billion for the year ago period.