Trefis'  Instablog

Cisco (CSCO) is expected to release its latest quarterly earnings today (Wednesday 2/3).  This comes after the earnings announcement of its competitor Juniper (JNPR) during the previous week.  We currently have a Trefis price estimate of $23.72 for Cisco compared to the market price of $22.96.  Below we highlight the most important factor impacting the value of Cisco’s stock:

Network Switches: 26% of Cisco’s Value

Cisco’s core business is selling network switches to medium and large businesses as well as internet service providers.  Network switches manage and direct communication within a network and are thus different from routers which manage communication between networks.

For example, consider a small Local Area Network (or LAN) in an office.  If office worker Jane wants to send a message to her colleague Bob who is also within the LAN, then a network switch can direct the message to Bob.  Alternatively, if Jane wants to communicate with her friend Mary, who is not a part of the LAN, the switch recognizes that and directs the message to a router that can send it to Mary over the internet.

Cisco dominates in the $18 billion bottom layer switch market (also known as layer 2-3 switches), where we estimate the company has about 64% market share.  Bottom layer switches are the most common class of switches found in almost all networks.  You can modify our forecast of Cisco’s Bottom Layer Switch Market Share to see how Cisco’s stock would be impacted by changes in its share.




 

Dish Network is launching a comprehensive technology solution for its customers that will allow them to gain access to recorded and live shows over the internet. The company is using SlingBox technology developed by Sling Media with Echostar. We believe that following trends are driving this offering.

Differentiation: The move comes amidst heating competition in the pay TV market. A noticeable trend is that each player is trying to differentiate itself in the market through features rather than through pricing. Comcast is offering free online on-demand video service and DirecTV is bringing 3D programming to market.

Online Video Growth: The consumer preference is shifting to online viewing. Availability of cheaper movie options like Netflix and sites such as Hulu and YouTube offering free videos, is driving a significant amount of audience online. Dish Network is attempting to offer similar viewing options for customers with its own online offering.

The advantage of Dish, over Comcast is that all of Dish Network's content will be available online whereas only limited amount of Comcast content will be available over internet.

We believe that ability to view TV content anywhere and anytime, on laptop, TV or mobile will turn out to be a powerful incentive for customers and help Dish in maintaining market share that is increasingly under threat.