We upgrade our recommendation on Polycom Inc. (PLCM) to Outperform. The companydeclared record-high first-quarter 2011 financial results, surpassing the Zacks Consensus Estimates. Despite facing competitive pressure from Cisco, which acquired Tandberg TV, Polycom’s high-margin Network Infrastructure Systems businesses grew 25% year over year in the previous quarter. Strong momentum of the Network Infrastructure division is a significant positive for Polycom since this division drives overall margin of the company.
As of now, Polycom remains the only pure play unified collaborative solutions provider. Polycom stands to gain as enterprises, governments, and educational institutions increasingly recognize the productivity-enhancing benefits of video conferencing. The company is a leading solutions provider for video conferencing, with an estimated 40% share of the market. Additionally, Polycom is streamlining its cost structure by reducing headcounts in order to realign and reinvest resources in strategic growth areas.We believe long-term fundamentals of videoconferencing industry are compelling.
Industry leading unified collaborative solutions of Polycom received huge market traction especially in the emerging markets of China and India. We believe Polycom is gaining market share despite facing stiff competition from large rival like Cisco Systems Inc. (CSCO) Polycom’s state-of-the-art unified communications technology integrate video conferencing and instant messaging and enables data transfer from one communications platform to a different platform.
Polycom has strong business agreements with leading original equipment manufacturers (OEMs) and resellers in the telecom industry. The “Polycom Open Collaboration Network” enables the company to achieve significant revenue and market share with the help of its business partners. Large technology companies like Microsoft Corp. (MSFT), International Business Machines Corp. (IBM), and Hewlett-Packard Co. (HPQ) are expanding Polycom brands in several markets that were previously unreachable to the company.
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