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Published: June 30, 2010
Over the last half decade, two tech giants
have learned to accommodate each other. Apple (Nasdaq: AAPL)
became the darling of consumers everywhere with its iPod, iPhone,
and iPad. And Research in Motion (Nasdaq: RIMM) held a
tight grip on the smartphone market for business users with its
line of Blackberries.
RIMM has managed to retain a strong following, even in the face
of repeated forays by rivals into its market. Corporate IT
managers have been a loyal bunch. Surveys find that they have
repeatedly tried out other vendors' offerings, but choose to
renew contracts to have their staffs’ phone calls and e-mails
routed through RIMM’s Blackberry servers.
But some are wondering if that iron grip is about to loosen.
Right at a time when RIMM was said to be developing a tablet
computer to come up with an iPad for the corporate set, Cisco
Systems (Nasdaq: CSCO) appeared out of nowhere. The tech
giant, which has been slowly expanding beyond its telecom roots,
will introduce its first computer-like offering, a table
computer known as Cius, next winter. And rather than go after
Apple’s turf, Cisco is aiming at the corporate market. The
company believes that incorporating high-definition
video-conferencing into such a tablet-like device will be a
game-changer.
Cisco’s announcement this week creates more questions than
answers:
- Will corporate customers clamor for a tablet-like
device? After all, they are often tethered to their desks,
whereas consumers like the fact that the iPad can be brought
to the beach or coffee shop.
- Is Cisco looking to develop a Blackberry-like server model
that handles voice and e-mail traffic? The company has yet to
announce plans in that area.
- If RIMM comes out with a similarly robust offering, will IT
managers still be willing to dump their legacy investments in
Blackberry hardware and service to switch to Cisco, which is
unproven in this area?
- Do corporate users feel the need to be able to hold video
conferences any time, any where? Perhaps a small niche, but
hardly the vast hordes that Cisco may be envisioning.
Clearly, Cisco faces an uphill battle to dethrone RIMM. But
it will have one big factor in its favor: Apps. By relying on
Google’s (Nasdaq: GOOG) Android operating software (OS),
Cisco’s Cius will have the support of thousands of applications,
an area in which RIMM has been unable to muster as much interest
as it had hoped. These apps are what made the iPhone and the
iPad such a success, and as more tech firms throw their weight
behind Android, the same thing is likely to happen for Cisco and
other partners that use the OS as well.
Equally important,
the Cius probably
represents just an
initial foray into
RIMM’s turf. Cisco
has a history of
slowly entering new
markets, and then
expanding its
product lines as
time passes. And
Apple shouldn’t
think it has nothing
to worry about.
Cisco is
increasingly moving
into the consumer
space with cable
set-top boxes,
wireless modem hubs,
the Flip video
camera and other
devices. Can a Cius-like
device aimed at
consumers be far
behind?
In truth, RIMM has
less to worry about
that it first
appears. But
perception is
reality, and
analysts are talking
up Cisco as a new
rival. Goldman Sachs
analysts wrote
Tuesday that they
see the announcement
as "an incremental
threat to RIM.”
Media reports also
seem to set RIMM in
the bull’s eye. And
as long as RIMM is
seen as being
threatened, shares
will fail to
rebound. It may take
a number of quarters
for the company to
once again beat back
its detractors. So
even though shares
are ultra-cheap, at
less than nine times
fiscal (February)
2011 projected
profits, they are
likely to stay that
way the rest of the
year.
Action to Take
--> Cisco
had the bad fortune
to announce the Cius
on a day when the
market collapsed,
pushing its own
shares down more
than -3%.They’ve now
fallen more than
-20% since early May
in sympathy with the
broader market. And
even though Cius may
not be a threat to
RIMM, it is a clear
threat to its
traditional telecom
rivals such as
Juniper Networks (Nasdaq:
JNPR) or
Polycom (Nasdaq:
PLCM). These
companies can no
longer keep up with
Cisco in terms of an
end-to-end corporate
communications
solution, from the
routers that handle
data traffic to the
desktop IP phones
that sit on many
corporate desks. If
you back out Cisco’s
hefty $24 billion
net cash position,
its shares also
trade for less than
10 times projected
profits.
Both RIMM and Cisco
should benefit from
the ever-expanding
reach of technology,
but Cisco can count
on a more positive
view from analysts
and the financial
media in coming
quarters, making it
the safer play.
-- David Sterman
Staff Writer
StreetAuthority |
