Cisco's Home Networking Business Could Grow Further

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In addition to Cisco ( CSCO ) 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 ( NTGR ) 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 stock , 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 Flip.

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 for now.

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 estimates.

Our complete analysis for Cisco's stock is here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMD , CSCO , NTGR

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