Over the last half decade, two tech giants have learned to
accommodate each other.
became the darling of consumers everywhere with its iPod, iPhone,
and iPad. And
Research in Motion (Nasdaq:
held a tight grip on the smartphone market for business users with
its line of Blackberries.
RIMM has managed to retain a strong following, even in the face of
repeated forays by rivals into its market. Corporate IT managers
have been a loyal bunch. Surveys find that they have repeatedly
tried out other vendors' offerings, but choose to renew contracts
to have their staffs' phone calls and e-mails routed through RIMM's
But some are wondering if that iron grip is about to loosen. Right
at a time when RIMM was said to be developing a tablet computer to
come up with an iPad for the corporate set,
Cisco Systems (Nasdaq:
appeared out of nowhere. The tech giant, which has been slowly
expanding beyond its telecom roots, will introduce its first
computer-like offering, a table computer known as Cius, next
winter. And rather than go after Apple's turf, Cisco is aiming at
the corporate market. The company believes that incorporating
high-definition video-conferencing into such a tablet-like device
will be a game-changer.
Cisco's announcement this week creates more questions than
- Will corporate customers clamor for a tablet-like device?
After all, they are often tethered to their desks, whereas
consumers like the fact that the iPad can be brought to the beach
or coffee shop.
- Is Cisco looking to develop a Blackberry-like server model
that handles voice and e-mail traffic? The company has yet to
announce plans in that area.
- If RIMM comes out with a similarly robust offering, will IT
managers still be willing to dump their legacy investments in
Blackberry hardware and service to switch to Cisco, which is
unproven in this area?
- Do corporate users feel the need to be able to hold video
conferences any time, any where? Perhaps a small niche, but
hardly the vast hordes that Cisco may be envisioning.
Clearly, Cisco faces an uphill battle to dethrone RIMM. But it
will have one big factor in its favor: Apps. By relying on
Android operating software (
), Cisco's Cius will have the support of thousands of applications,
an area in which RIMM has been unable to muster as much interest as
it had hoped. These apps are what made the iPhone and the iPad such
a success, and as more tech firms throw their weight behind
Android, the same thing is likely to happen for Cisco and other
partners that use the OS as well.
Equally important, the Cius probably represents just an initial
foray into RIMM's turf. Cisco has a history of slowly entering new
markets, and then expanding its product lines as time passes. And
Apple shouldn't think it has nothing to worry about. Cisco is
increasingly moving into the consumer space with cable set-top
boxes, wireless modem hubs, the Flip video camera and other
devices. Can a Cius-like device aimed at consumers be far behind?
In truth, RIMM has less to worry about that it first appears. But
perception is reality, and analysts are talking up Cisco as a new
rival. Goldman Sachs analysts wrote Tuesday that they see the
announcement as "an incremental threat to RIM." Media reports also
seem to set RIMM in the bull's eye. And as long as RIMM is seen as
being threatened, shares will fail to rebound. It may take a number
of quarters for the company to once again beat back its detractors.
So even though shares are ultra-cheap, at less than nine times
fiscal (February) 2011 projected profits, they are likely to stay
that way the rest of the year.
Action to Take -->
Cisco had the bad fortune to announce the Cius on a day when the
market collapsed, pushing its own shares down more than -3%.They've
now fallen more than -20% since early May in sympathy with the
broader market. And even though Cius may not be a threat to RIMM,
it is a clear threat to its traditional telecom rivals such as
Juniper Networks (Nasdaq:
. These companies can no longer keep up with Cisco in terms of an
end-to-end corporate communications solution, from the routers that
handle data traffic to the desktop IP phones that sit on many
corporate desks. If you back out Cisco's hefty $24 billion net cash
position, its shares also trade for less than 10 times projected
Both RIMM and Cisco should benefit from the ever-expanding reach of
technology, but Cisco can count on a more positive view from
analysts and the financial media in coming quarters, making it the
-- David Sterman
Disclosure: Neither StreetAuthority, LLC nor the David Sterman
hold positions in any securities mentioned in this report.