Cisco's Commitment to Video Conferencing Evidenced by Tandberg Acquisition

Dec.12.10 | About: Cisco Systems, (CSCO)

Cisco’s (NASDAQ:CSCO) presence in the teleconferencing market is growing, as evidenced by the company’s April 2010 acquisition of Tandberg, a Norwegian-based video communications company. The Tandberg unit, an end-to-end video conferencing system, is targeted at enterprises both small and large. By installing these end-to-end conferencing systems, a company’s employees can experience virtual, life-like meetings while sitting at their own desk.

Cisco competes with Polycom (NASDAQ:PLCM), Sony (NYSE:SNE), Radvision (NASDAQ:RVSN) and Aethra in the video conferencing market. The inclusion of Tandberg in its TelePresence portfolio benefits Cisco in two ways: 1) expanding customer base; 2) integration with other Cisco products like cameras and set top boxes.

We expect the average price per Tandberg video conferencing unit to rise to $8,820 by 2013 from $8,310 currently [1]. However, video conferencing currently constitutes under 2% of our price estimate for CSCO stock and so changes in pricing alone will not move the stock that much.

We currently have a Trefis price estimate of $24.04 for Cisco’s stock, about 25% above the current market price.

Expanding Customer Base

Although competition in the video conferencing market is intense with many players, Tandberg enjoys a loyal and committed customer base of small and medium enterprises (SMBs), which find similar offerings by the likes of HP (NYSE:HPQ) and Sony too expensive. While Tanberg is targeted more at SMBs, Cisco’s own TelePresence system is aimed at high-end corporate customers. Hence Tandberg will help Cisco widen its customer base and increase unit sales.

Integration with Other Media

Cisco acquired Tandberg for $3.4 billion, which many think may be overvalued for a market that’s around $2 billion. But the company seems confident in its decision as well as the future of teleconference. According to Marthin De Beer, the head of Cisco’s emerging businesses group, video accounts for 50% of network traffic and will grow to 90% in the next three years. [2]

Tandberg, which is now part of Cisco’s TelePresence portfolio, will go a long way in boosting the company’s overall revenues. Cisco has a huge opportunity in capitalizing on the “collaboration” market, which includes integration of e-mails, video cameras and set-top boxes through its video conferencing system. With Cisco selling its own Flip video camera, back-end systems and set-top boxes, Cisco can play a leading role in making video conversations commonplace.

Member Forecast

The Trefis community forecasts price per Tandberg video conferencing unit to increase from $8,194 in 2010 to $8,820 by 2013 compared to the baseline Trefis estimate of an increase from $8,307 to $8,550 in the same time period.

Notes:

  1. Reported by the company in its SEC filings
  2. Bloomberg: Cisco Says Tandberg Acquisition Is Just Start of Video Growth
Disclosure: No positions