Cius Tablet Could Lift Cisco Stock by 1%

+4.02%
Upside
171
Market
178
Trefis
AAPL: Apple logo
AAPL
Apple

Cisco (NASDAQ:CSCO), which competes with Juniper (NYSE:JNPR) in the digital network equipment business, is planning to unveil a new tablet PC in the first quarter of 2011.

The move is further evidence that Cisco is moving beyond its core router and switch business to provide a broad range of collaborative technology for the enterprise market. If the Cius tablet succeeds, we see a modest potential upside of 1% to our $24.76 stock price estimate for Cisco. Our analysis follows below.

Cisco’s rising ambition

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The Cius tablet is expected to work with Cisco’s Telepresence videoconferencing technology to deliver efficient mobile collaboration for enterprise users. Cisco’s move into the tablet market, following its successful foray into IP phones, reflects the company’s strategy of  driving more and more data usage by providing technology at every point in the network, from infrastructure to end-user devices.

Mobile collaboration is becoming an increasingly important technology market. Enterprise mobile users are likely to make up more than 70% of the workforce by 2012, according to Forrester Research. While Cisco sells mainly to enterprise customers, Forrester estimates that the mobile wannabee segment, made up of employees who use personal mobile devices to access corporate applications, will account for 25% of all employees by the end of 2012.

Lessons from the IP phone market

The IP phone market offers clues about the economic potential of  Cisco’s new tablet. The same employees who use IP phones are likely to use other mobile devices for business purposes. Thus, we can use Cisco’s IP phone sales to estimate the potential market for its tablet.

We expect global IP phone shipments to increase from nearly 16 million in 2009 to about 27 million by the end of the Trefis forecast period. We expect Cisco to maintain its current 26% share of the IP phone market.  This implies that Cisco’s IP phone shipments will increase from about four million in 2009 to around seven million by end of our forecast period.

You can drag the trend-line in the chart below to create your own global IP phone market forecast and see how it impacts Cisco’s estimated stock price.

Tablet upside for Cisco

Assuming that Cisco prices the Cius below Apple‘s  popular iPad tablet (NASDAQ:AAPL), we think Cisco could move more than two million Cius units a year  by the end of our forecast period, or about 30% of its expected IP phone sales. In this scenario, incremental cash flows from tablet sales would yield a modest upside of just over 1% to Cisco’s stock.

That said, Cius sales could suffer if Apple manages to extend the iPad’s reach into the enterprise market. And many other hardware manufacturers are expected to launch new tablets in coming years. Nevertheless, Cisco’s dominant position in the network infrastructure business could give the company a leg up with corporate customers.

You can see the complete $24.76 Trefis price estimate for Cisco’s stock here.