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Led by MIT engineers and Wall Street analysts, helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. Surprisingly, the founders of Trefis discovered that along with most other people they just did not understand even the... More
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  • 26% of Cisco's Value is Network Switches

    Cisco (NASDAQ:CSCO) is expected to release its latest quarterly earnings today (Wednesday 2/3).  This comes after the earnings announcement of its competitor Juniper (NYSE: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.


    Significant Router Business and $20 Billion of Net Cash

    In addition to Network Switches, a significant part of Cisco's value comes from its router business (14%) and its net cash (cash minus debt) holdings (14%).  You can see the rest of our Cisco analysis here to see what matters for Cisco's router business as well as Cisco's other businesses.

    Disclosure: No positions
    Tags: CSCO, JNPR
    Feb 03 3:51 PM | Link | Comment!
  • Dish Network moving online with 'TV everywhere'

    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.

    Disclosure: No positions
    Tags: DISH, CMCSA
    Jan 14 3:12 PM | Link | Comment!
  • The business of broadcast TV is being transformed
    Time Warner Cable, the second largest cable carrier in US after Comcast and Fox Broadcasting company, a unit of News Corp., have recently reached an agreement whereby Fox will charge Time Warner Cable a monthly fee that we estimate to be around 70 cents for every Time Warner Cable subscriber that receives Fox's programming. 

    This marks a significant change in the TV landscape since broadcast networks like Fox, ABC, NBC and CBS have historically made money solely through advertising.  Fox demanded subscriber fees as a result of declining ad revenues which are attributable to general macroeconomic weakness in the ad market as well as the on-going shift from TV ads to internet ads.  The subscriber fees will help make Fox even more profitable in the future when the ad market recovers.

    We believe that the costs of paying subscriber fees to Fox will be absorbed by Time Warner Cable. Fox is available to about 14 million Time Warner Cable subscribers and we estimate that the fee will amount to an additional direct cost of nearly $120 million annually for the company thereby reducing gross margins slightly.

    Subscriber costs could add up if broadcast networks ABC, NBC and CBS follow Fox in demanding fees as well. 
    However, Time Warner Cable is likely to mitigate significant margin declines by passing on the additional subscriber costs to you.

    Show TWC Digital Cable Gross Margin Chart


    Disclosure: No positions
    Tags: TWC
    Jan 12 2:30 PM | Link | Comment!
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