Cisco's Supremacy Should Help It Win Big In This Market

| About: Cisco Systems, (CSCO)

Gartner projects that the annual market for wireless solutions in healthcare will reach $1.7 billion by 2014. By the end of 2015, it is expected that about 500 million people will be using wireless health and wellness applications. This is where two networking infrastructure and network security giants -- Cisco (NASDAQ:CSCO) and Juniper (NYSE:JNPR) -- can be the beneficiaries of the need for a secure and widespread network infrastructure in U.S. hospitals because with such a widespread network of devices, all it takes is a misplaced iPad to sound off the alarm bells and fines.

The opportunity

According to a study from the Ponemon Institute, U.S. hospitals might bear a loss to the tune of $8.3 billion per year due to productivity time loss. This is attributable to the inefficient systems of yesteryear like pagers, along with inefficient email systems and lack of a widespread Wi-Fi infrastructure which wasted an average of 46 minutes per day for each clinician. Lack of widespread and secure Wi-Fi networks are a major roadblock in the use of mobile medical reference apps & new mobile EHR (electronic health record) services apps.

Another factor to consider is the safety of medical records of patients. In September 2012, Massachusetts Eye and Ear was fined $1.5 million by the HHS Office for Civil Rights (OCR) when a laptop containing patient records was stolen. Throw in smartphones and other hand-held smart devices that are in use for 70% of the cases to access data, and the scenario becomes more critical. More and more doctors, nurses and healthcare professionals are using these devices.

Even the FDA is recommending hospitals and healthcare service providers to secure their networks from cyber attacks and malware. FDA's concern for network security is high and it is recommending security evaluation procedures in hospitals to safeguard its devices and patient records. Cisco's BioMed Network Admission Control (NAC) can go a long way in achieving this.

Cisco's moves

Cisco is the world's largest networking equipment manufacturer. The company is modernizing the outdated network infrastructure of hospitals with its Cisco Medical-Grade Network. Cisco has a rich product portfolio for the healthcare industry. This includes products for hospital-wide wireless connections and real-time notification systems that reach all medical staff across multiple devices connected to the network, along with video streaming technology for remote diagnoses and treatments.

In addition, Cisco also provides EHR integration through a partnership with Allscripts Healthcare Solutions. Allscripts is one of the companies that will benefit as Cisco increases its presence in the healthcare industry going forward.

The move of expanding into the healthcare industry is a wise strategic move for Cisco. This can more than offset the losses from muted enterprise and government sector spending during economic downturns. The impact of global macro weakness caused Cisco to announce plans to cut 4,000 jobs, or 5% of its workforce, earlier this year. Moreover, Cisco also guided for a drop in revenue in the ongoing quarter as it faces weakness in markets such as China.

Digital hospitals are also an extension of Cisco's bundling strategy, which will have a long-term impact on smaller players in the market. Cisco has also partnered with IBM in order to create a futuristic hospital. This includes a provision to create an all-in-one digital hospital solution that includes RFID tags for patients, biometrics-activated work terminals, and robust security provisions which would optimize clinician workflow by integration with EHR software.

Cisco has also acquired a cyber security firm Sourcefire for $2.7 billion in order to bolster its network security portfolio. This will be a great asset to have as the company has a very strong presence in the government vertical.

A look at Juniper's moves

Juniper, on the other hand, has attempted to boost its presence in healthcare IT by emphasizing the more robust security measures in its WLAN products. Juniper is attempting to simplify networking in hospitals by assigning a single policy per user which works across the entire network. These propositions may sound good, but they don't substantially alter Juniper's original business of selling routers and switches. The company has also partnered with IBM, just like Cisco, for providing healthcare solutions.

However, when compared to Cisco, Juniper clearly lacks the firepower to step into the healthcare industry beyond providing the routers and switches. Juniper is witnessing strong revenue growth in some of its key business markets and is gaining traction in its routing and switching portfolio. But Juniper is trying to make the most of the opportunity that it has in front of it. The company has recently released new products such as P4000, PTX, and QFabric to get more high-margin business. Moreover, Verizon and AT&T are two major clients of Juniper in the U.S. and each account for around 10% of its revenue. As they expand their network, Juniper's revenue should also increase.

Which one to choose?

In my opinion, investors would be better off with investing in Cisco since it is cheaper at a P/E of 12 as compared to Juniper's P/E of almost 30. Also, Cisco pays a dividend yielding 3.10%. Cisco might be in a soup of late after reducing its guidance, but it looks set to benefit from the digitalization of hospitals going forward. The market is growing as we saw above and Cisco is already entrenched in it with its suite of solutions and IBM partnership. Hence, Cisco bulls have yet another reason to hold on to the stock as it makes moves to tap this opportunity in hospitals.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.