Japan is one of the largest economies globally, and therefore
any disruptions raise alarms outside of the island nation as well.
In this context, we look at how Cisco (
) might be impacted given Japan's large technology presence. Cisco
competes with Juniper (
) and Alcatel-Lucent in the network equipment business.
We present our quick take on Cisco in the context of the recent
terrible events in Japan. We believe that Cisco will be resilient
due to the below factors.
Supply Disruptions Not Significant For Now
While the disaster has directly impacted companies with
manufacturing facilities in Japan, its indirect effect for
companies situated internationally comes in the form of supply
shortages of components and lower sales in the Japanese market. In
particular, production disruptions are mostly impacting the core
electronics business and the networking equipment's situation is
likely to be better. Network World states that:
Components impacted are those used widely in the consumer
electronics marketplace, and in laptops, PCs and servers: NAND
flash memory, dynamic random access memory (
), microcontrollers, standard logic, liquid-crystal display (LCD)
panels, and LCD parts and materials, according to IHS
Japan is Small Business Segment for Cisco
Although Japan has higher margins, its revenue contribution to
Cisco's business is low. The company mentions in its earnings
transcript that its total gross margins ranged from about 62.9% for
the Asia-Pacific region and emerging markets to about 71.1% in
Japan for Q3 of fiscal year 2010.
However, Japan accounts for just about 3% of Cisco's revenues
and the growth in the region has slowed in the recent past. Even if
the business in Japan slumps for an extended period of time for
Cisco, it won't impact earnings meaningfully. Additionally as Japan
looks to rebuild its infrastructure, the equipment required could
help make up for the lost sales. Cisco could potentially use this
opportunity to increase its penetration in this market allowing it
to expand its reach and potentially improve profit margins.
the complete $24.20 Trefis price estimate for