) released Q3 recently with lowered guidance leading us to lower
our forecasts and
price estimate for Cisco's stock to $24.04
, which is about 23% above current market price.
Cisco competes with Juniper (
), Alcatel-Lucent (
) and Tellabs (
) in the routing and switching businesses.
We recently published an article
discussing how weak public sector demand is affecting Cisco.
However, Cisco is also facing dramatic declines in orders from
cable providers, especially in set-top box business.
We currently forecast flat market share for Cisco in the set-top
box business through the Trefis forecast period. Using our charts,
if Cisco were to leave this business altogether by 2016, and
drops from around 9% to 0%, this reduces our price estimate by
North America Set-Top Box Weakness
Traditional set-top box orders from North American accounted for
about 50% of all set-top box orders in the recent quarter and
suffered a massive decline of 40% in Q1 2011 vs. last year.
In addition to slowing spending, lower cost competitors are
making significant inroads into this business.
A Need to Worry?
We don't think that investors should be too much concerned about
Cisco's set-top box business. This business constitutes only about
4.3% to Cisco's stock based on our estimates. Moreover, the company
has stated that it is only witnessing declines in traditional
set-top box business while its IP set-top box business is doing
As Cisco positions itself better for future by transitioning its
business to focus more on new generation set-top boxes, the effect
of a decline in the traditional set-top box will be limited.
The key for investors will be to focus on the new generation
set-top boxes and the switches and routers business makes up 27%
and 16% of Cisco's value, respectively.
You can see
the complete $24.04 Trefis price estimate for
Cisco's stock here.