For Polycom (PLCM), there are two schools of thinking on how the company will be affected by the news that Cisco (CSCO) will spend $3 billion to buy Tandberg, Polycom’s chief rival in the video conferencing business. On the one hand, it gives PLCM scarcity value, as the only real pure play in the sector, and the obvious place to turn for any customers who don’t want to turn to Cisco. But on the other hand, their chief competitor morphs from Norway-based Tandberg to networking giant Cisco. And that could be a bit of a problem.
Wells Fargo analyst Jess Lubert this morning downgraded the stock to Market Perform from Outperform, with a new target price range of $27-$29, down from $29-$32. Lubert writes that while the deal is likely to create some near-term opportunities for Polycom, Cisco’s move looms “as a meaningful threat to Polycom’s market share.”
Already the market leader, Tandberg now becomes a more formidable foe, Lubert contends. “The purchase of Tandberg would immediately make Cisco the market share leader in video endpoints and network systems,” the analyst writes. “However, given Cisco’s impressive channel, balance sheet and ability to integrate Tandberg’s video conferencing endpoints with its infrastructure and unified communications platforms, we think the combined entity is likely to extends its share upon closure of the deal.”
Raymond James analyst Todd Koffman notes that while Tandberg has historically outperformed Polycom from a growth, share and profitability perspective, it recently has rolled out new products that make it more competitive; he wonders if maybe Cisco is buying the wrong company. He contends PLCM “may be at a positive inflection point in the video marketplace,” and repeats his Outperform rating.
Meanwhile, Jefferies analyst William Choi says he does not expect a takeover bid for Polycom in the near-term. He says Avaya and Hewlett-Packard have previously been considered possible suitors, but that Avaya has its hands full with the recent purchase of Nortel’s IP telephony assets, and that HP has gained little traction in telepresence, and seems more focused on the data center. Choi maintains his Hold rating, and says that “competition is even more intensified” with Cisco buying Tandberg.
PLCM today is down 41 cents, or 1.5%, to $26.34.