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.