On Feb 27, 2015, we issued an updated research report on Polycom, Inc. PLCM.
Polycom delivered positive earnings surprises in two quarters last year, with an average beat of 29.67%. Meanwhile, the company reported fourth-quarter 2014 financial results wherein the bottom line surpassed the Zacks Consensus Estimate while the top line was on par.
Polycom is gradually adopting a software centric business model, which is likely to significantly raise its market opportunities. Cloud software solutions for telecom service providers, application software for mobile devices, and collaboration software for enterprise customers, are the core areas of focus for the company. Polycom is also streamlining its cost structure by reducing headcount, in order to realign and reinvest resources in strategic growth areas.
Meanwhile, Polycom has penned a deal with Australian partner Telstra to deliver RealPresence One. The company also struck two major deals with an African-based bank and a local semiconductor company. Separately, the company has collaborated with AT&T, Inc. T to deploy cloud-delivered video communications solutions.
In the fourth quarter of 2015, Polycom reported strong operating cash flow and revenues. Moreover, in the product category division, except for the UC Platform Network Infrastructure, all segments reported growth in revenues. Excluding North America, Polycom registered 5% and 2% growth in revenues from the EMEA and Asia Pacific regions, respectively, in the fourth quarter. Meanwhile, lower operating costs have resulted in substantial improvement in operating income in the quarter.
On the downside, Polycom witnessed a drop in sales in the lucrative North American region in the fourth quarter. Notably, North America contributes nearly 51% of the company’s revenues. Hence, a decline in North American sales may further dampen top-line growth going forward. Moreover, revenues from the European region are likely to be affected by the prevailing geopolitical tensions in Russia.
In the meantime, the uniform collaborative communications market is becoming fiercely competitive, resulting in the adoption of cut-throat pricing strategies by companies. Meanwhile, post the acquisition of Norway’s Tandberg TV, Cisco Systems, Inc. CSCO will pose serious competitive threat to Polycom. Also, mergers and acquisitions will likely result in increased customer churn for the company.
Polycom currently carries a Zacks Rank #2 (Buy). A better-ranked stock in this sector is InterDigital, Inc. IDCC with a Zacks Rank #1 (Strong Buy).
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