In addition to Cisco (
) having a strong foothold in network routers and switches
market for enterprises, the company also has a large presence in
home networking products, which includes networking and
communication devices and software for household users. The company
sells these products under the Linksys brand.
Cisco competes with well-established players like D-Link
(TPE:2332) and Netgear (
) in the home networking market. We expect slower growth going
forward and for the market share to stabilize at around 26% over
the next few years.
Cisco entered the home networking products market in 2003 by
acquiring Linksys and has since then grown consistently.
Factors such as strong brand image, acquisitions, and wide
distribution network have contributed to this growth.
We currently have a
Trefis price estimate of $24.04 for Cisco's
, about 25% above the current market price of $19.22.
Wide Distribution Network and Strong Brand
Cisco offers a vast range of products such as IP phones,
switches, modems, routers, adapters, media hubs, and cameras under
the Linksys brand, which is quite popular among consumers. The
company has a wider scale and distribution network compared to some
of its smaller competitors, which has been an important factor in
boosting its market share.
A couple of factors could lead to faster market growth including
the increasing penetration of broadband services globally which
increases the need for communication devices such as Cisco's. Also
international markets provide some growth opportunities.Last year,
Cisco appointed Compuage Infocom as the national distributor of
Linksys products in India. Such steps are going to further
strengthen Cisco's presence in developing countries.
Acquisitions Boost Market Presence
Cisco has often acquired key players in a market to lift its
market presence. After its market share dropped by around 5
percentage points in 2005-06 due to better offerings from
competitors, Cisco made a come-back by acquiring Sipura
Technologies, a VoIP phone adapter manufacturer, and later regained
its share. In 2009, the company acquired Pure Digital, the maker of
Flip video camcorders, which we included in this division. Cisco
also recently announced Valet, a line of consumer home networking
routers which combines technology of Linksys and simplicity of
Business Impact and Outlook
As a scenario, if the Home Networking Market doubled from our
current estimates of $2.5 billion in 2010 to around $5 billion in
the next few years and Cisco could grow its market share to around
40% from 26% currently, this would add a few percentage points to
our price estimate so it's not a large driver for its stock price
However, given the increased needs for these devices and global
relevance as broadband, VoIP, satellite and other channels for
content reach the household, Cisco might decide to push further
into this market given its global distribution advantage and well
known brand. This could be an interesting area of growth and would
contribute to the networking business beyond our current
complete analysis for Cisco's stock is here