CSCO "telephone equipment" vs the Chinese?

[johnmonaghan2]

I read in Yahoo Finance that in the lightning round session of Jim Cramer’s Mad Money TV program, Thursday October 26, that he is bullish on Cisco. That's fine, but his rationale -- "telephone equipment ... we're going to stick with CSCO, not the Chinese" -- makes no sense.

First off, the market Cisco plays in is not "telephone equipment" but, more accurately, "Enterprise Telephony" or "IP Telephony." The Chinese don't even play in these markets.

According to Synergy Research Group (Worldwide IP Telephony market share report, 1Q06, lines shipped), the leaders in this spase are US-based Avaya (22%), then Cisco (20%), then Canada-based Nortel Networks (16%), France-based Alcatel (13%) and Canadian-based Mitel (8%).

Even in the Asian Pacific IP Telephony market, the Chinese don't play and Cisco lags behind. According to Frost and Sullivan (4Q05), based on revenues, the market share leaders are Avaya (24%), NEC (17%), Cisco (14%), Alcatel (11%) and Nortel Networks (9%).

If we're talking about the combinded total of both IP Telephony and traditional TDM-based Telephony (or "Enterprise Telephony"), Cisco market share drops to 6th place with only 8% of the market, compared with market leader Avaya with a commanding 20% share.

Jim Cramer's primary mantra: "I LIKE TO OWN BEST OF BREED!!!" This is what drives his bullish picks. However, in the world of Entereprise Telephony, Cisco does not meet that criteria. While they have enjoyed growth and market acceptance, its technology is "kludge" at best, cobbled together over the past 10 years or so. Compare that with 100+ years of innovation and refinement from market leader Avaya (formerly Lucent, AT&T and Western Electric and powered by Bell Labs).

Keep in mind too that Cisco's core business remains switching and routing, not "phone equipment." They still consider voice technology as "emerging." Telephony represents only a small fraction of Cisco's overall revenues. And it is unknown how much their telephony business contributes to the company's overall profitability, if at all. For Cisco, telephony is a means to an end, not an end unto itself. Just like their recent efforts to promote video, their goal is to drive more traffic over IP-based networks to increase demand for Cisco networking infrastructure. As long as that remains their strategy, the longer it will take them to become "best in breed" in telephony.

Cisco's financials as a company have always been impressive, and that might be reason enough to be bullish on CSCO. But to lead viewers/listeners/readers to believe they are "best of breed" in "phone equipment," or competing with the Chinese for this business, is just plain false. Just to set the record straight.

[Blackark]

This is disingenuous at best.

A caller called in and asked about XING. Cramer said to pick up some Cisco instead.

He is thinking in terms of Cisco's acquisition of Scientific Atlanta and how that will work for the "triple play" of voice, video and internet.

Cisco is positioning itself to be an end to end provider of triple play technology for the cable and IS providers.

Cramer thinks Cisco can crush small players like ARRS or just buy them out to gain market share.

This has nothing to do with best of breed, it has to do with Leverage.

You are entering the conversation thinking about enterprise telephony, this is the wrong approach. It has to do with the end to end services of the "triple play". Cisco is big enough to just buy its way into gaining market share, thats what the whole thing was about.

[johnmonaghan2]

Thanks for clarifying. CSCO is doing a fine job in positioning themselves in the Service Provider space.

[neidermeyer]

This is disingenuous at best.

.....
This has nothing to do with best of breed, it has to do with Leverage.

You are entering the conversation thinking about enterprise telephony, this is the wrong approach. It has to do with the end to end services of the "triple play". Cisco is big enough to just buy its way into gaining market share, thats what the whole thing was about.


If you want the best in IP telephony look at ININ ,, they are the best but they are tiny ... CSCO will do well but I tend to look for NEW leaders not crushed has beens.. CSCO looks alright , especially after the blastoff in 08/06 but it seems to be entering a basing period near the 50 day, you probably have time to pick it up for a month or more near these prices..