AT&T Deal Big Win for Cisco - BW

AT&T's (T) Dec. 10 decision to buy advanced video, broadband, and voice services from Cisco (CSCO) could be worth up to $500 million, Argus Research's Jim Kelleher surmises. But more than the value of the one deal are its implications, Business Week said.

When Cisco first rolled-out its top tier router in 2004, many said it was overkill, and would only be bought by a handful of companies. Now telcos and cable companies are "flooding Cisco with orders," helping it attain its dream of conquering the telecom market, and dethrone long-time incumbents like Alcatel-Lucent (ALU), Ericsson (ERIC), and Nortel (NT). Cisco's carrier revenues are already almost as large as Nortel's, and one analyst thinks sales could grow 1-2% as part of total sales (now 30%) over the next year. Cisco's service provider market share is up to 8.4% from 7.5% a year ago, bumping it to number-four equipment provider for carriers from #5 last year.

"The quick growth of its service provider business carries huge implications for Cisco. In a world in which more and more computing occurs out on the Internet as opposed to inside PCs and corporate networks, the companies that handle all the communications needs—carriers and cable companies—become increasingly crucial."

Additional Reading: A Look at How Cisco's Competitors are Faring • Cisco Systems F1Q08 (Qtr End 10/27/07) Earnings Call Transcript

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