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.
MICROSOFT CORP (
MSFT
): Free Stock Analysis Report
POLYCOM INC (
PLCM
): Free Stock Analysis Report
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