Polycom Downgraded to Neutral - Analyst Blog

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We downgrade our recommendation on Polycom Inc. ( PLCM ) to Neutral backed by our assessment that the global unified collaborative solutions market is becoming immensely competitive day by day and Polycom is yet to fix its sales execution problems in the North American region. The company's fourth quarter of 2011 financial results outpaced the Zacks Consensus Estimates.Despite facing competitive pressure from Cisco, Polycom's Network Infrastructure Systems businesses grew 39% in 2011.

Strong momentum of the Network Infrastructure division is a significant positive for Polycom since this division drives the company's overall margin. Though we believe long-term fundamentals of the videoconferencing industry remain compelling, Polycom must deliver with technically superior products for remaining competitive. Meanwhile, the stock price soared 17% in the last three months. We believe Polycom is currently fairly valued.    

Polycom expanded its videoconferencing technology agreement with Microsoft Corp. ( MSFT ), primarily targeting the enterprise unified collaboration market.  The company is one of the most vital business partners of Microsoft and provideshardware for Microsoft's video chat and VoIP software, Lync, which can be used to replace traditional phone systems.We believe the massive success of Lync has also helped Polycom to expand its top line in the previous quarter.  


At present, major concern for Polycom is its lukewarm performance in the most important North American regions. The company is significantly suffering in this region in the last couple of quarters, mainly due to poor execution problems of marketing and sales. Management has done several restructurings, which are yet to generate fruitful results. In the previous quarter, revenue from this region inched down 2% sequentially. The problem seems to be double-edged (1) growing competitive pressure (2) precipitous macro-economic fluctuations, resulting in volatile tech spending.   


 
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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 , Business , Stocks

Referenced Stocks: MSFT , PLCM

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