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Summary

  • Cisco recently announced the acquisition of collaboration services start-up Assemblage for an undisclosed amount.
  • The new acquisition comes within six months of Cisco’s buyout of Collaborate.com and reflects the company’s aim of capturing the emerging market of cloud-based enterprise collaboration services within the contours.
  • We have a $27 price estimate for Cisco, which is roughly in line with the current market price.

Networking giant Cisco (NASDAQ:CSCO) has slowly but steadily transformed its Collaboration business from a provider of telecom-based services to an integrated architecture combining mobility, software, video and cloud. The highlight of this transition has been its cost-effectiveness and focus on the new dynamics of accessibility and security, enabling people to collaborate and work together from any place using any device. In a move reflective of this approach, Cisco recently announced the acquisition of collaboration services start-up Assemblage for an undisclosed amount.

Assemblage is a provider of cloud-based tools for real-time collaboration using just an internet browser, without any plugins or downloads. It also offers presentation broadcasting, whiteboarding and screen-sharing services. In addition, its experience in integrating with popular third party applications such as Google and Box is likely to help Cisco expand its presence in the business. The new acquisition comes within six months of Cisco's buyout of Collaborate.com and reflects the company's aim of capturing the emerging market of cloud-based enterprise collaboration services within the contours of its Internet of Everything (IoE) concept.

Collaboration is one of the five foundational priorities for Cisco in the near term and the recent acquisitions should help it improve its sales in the business and also compete with rivals such as Microsoft (NASDAQ:MSFT), collaboration specialist Polycom Corporation and Chinese manufacturer Huawei.

We have a $27 price estimate for Cisco, which is roughly in line with the current market price.

Collaboration Business Under Pressure

As part of its Collaboration business, Cisco offers products under two main categories -- TelePresence Systems and Unified Communications. While TelePresence Systems includes products designed to provide high definition video and audio facilities for advanced conference room functionalities, Unified Communications is a collective term for various products such as IP phones, call center and messaging equipment as well as web-based collaborative services.

The Collaboration business sales have declined in the last couple of years owing to a decline in public sector spending in the U.S. as well as in Europe. The company's gradual shift towards recurring revenue channels driven by software-as-a-service (NASDAQ:SAAS) offerings also contributed to the decline, since revenue in such cases is deferred and realized over the term of the agreement.

Overall sales in the Collaboration business declined by 12% year-over-year in the third quarter ending April 26, 2014 and by 6% in the first nine-months of the current fiscal year. While telecom and fixed line products are witnessing weak demand, sales of conference products including WebEx are gaining traction. We expect the Assemblage and Collaborate.com buys to help Cisco further improve its WebEx offerings and help increase sales in the near to medium term.

New Products Could Drive Growth

The company recently updated its video system and endpoint lines with two new devices -- DX70 and DX80. Both devices are equipped with a touch screen monitor and video camera along with other telephone features. However, the most significant aspect of these devices is that they run on Google's Android operating system (OS). While not a full PC replacement, for employees whose work is highly collaborative we anticipate the DX being the predominant device on their desktop. Additionally, the underlying Android platform provides access from the DX to a broad range of applications.

The new products, DX70 and DX80, are priced at $1,000 and $2,000, respectively, and are being targeted at the mid-level market. The company aims to provide customers with collaboration equipment that is able to talk to other devices in the ecosystem as well, and doesn't end up being a closed ended product. Although we expect the company to face some friction from the free or less expensive options available to users, it will all depend on how the company markets the products and how simple and cost-effective they prove to be.

In an effort to enter into new geographies with its Collaboration products, Cisco launched its Android-based DX70 and DX80 devices in Kenya this week. The company is selling these products as essential devices for making collaborative work easier in the office, and attempting to bank on the familiarity and popularity of the Android OS in the country.

Disclosure: No positions.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: Cisco Betting On Acquisitions To Drive Collaboration Business