In a major strategic move yesterday, Polycom Inc. (PLCM), a market leader in the video conferencing solutions in the world, has taken quite a number of decisions to consolidate its market position.
(1) Polycom has formed a consortium of open video exchange cloud with 14 leading telecom service provider throughout the world. Notable among them are Verizon Communications Inc. (VZ), AT&T (T), Telefonica S.A. (TEF), and Telstra. This consortium will deliver business-to-business (B2B) video conferencing through the cloud network.
(2) Polycom has expanded its videoconferencing technology agreement with Microsoft Corp. (MSFT) primarily targeting the enterprise unified collaboration market. Polycom has strong business agreements with leading original equipment manufacturers (OEMs) and resellers in the technology industry.
(3) In a significant move, Polycom has decided to purchase Visual Collaboration Business of Hewlett Packard Co. (HPQ) that include its Halo Products and Managed Services for $89 million in cash. Acquisition of HP’s video conferencing unit will enable Polycom to expand into lucrative desktop and mobile video conferencing market. Halo Products will help Polycom to differentiate its offerings from its closest rival Cisco Systems Inc. (CSCO). The deal is expected to get regulatory approval by the third quarter of 2011.
(4) The board of directors of Polycom has authorized a two-for-one stock split in the form of a stock dividend. The stock split will entitle each stockholder of record at the close of the business on June 15, 2011, to receive one additional share for every one share owned as of that date.
Our Assessment
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 of video conferencing, with an estimated 40% share of the market.We believe long-term fundamentals of videoconferencing industry are compelling.
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. Industry leading unified collaborative solutions of Polycom received huge market traction especially in the emerging markets of China and India.
Recommendation
We reaffirm our long-term Outperform recommendation on Polycom. Currently, it holds a short-term Zacks #1 (Strong Buy) Rank on the stock.
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
POLYCOM INC (PLCM): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
TELEFONICA S.A. (TEF): Free Stock Analysis Report
Be the first to comment