Smart Grid: Growth Opportunity for Cisco and its Stock
Cisco (NASDAQ:CSCO), which competes with the likes of Juniper (NYSE:JNPR) in the router and switch market, has traditionally used acquisitions as one element to fuel growth. However, growing investments in smart grid indicate formation of a new market that could well be Cisco’s next growth catalyst.
Smart grid is the next-generation electricity-delivery network designed to monitor electricity consumption better at households and businesses. As the network is built out, it would require routers and switches to route information related to power consumption. Cisco plans to get its piece of the pie in this emerging smart grid market.
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Smart grid is gaining traction and can open up a whole new market for Cisco
Smart grid is gaining traction and may be an essential element for meeting future electricity consumption demands and controlling green-house gas emissions. According to a research conducted by Pike Research group, it is expected that about $200 billion will be invested globally in the smart grid network between 2008 and 2015 [1] out of which, about $53 billion [2] are expected to be invested in the U.S. alone. The size of such investments is grabbing the attention of several technology companies including Cisco.
A smart grid helps utility companies deliver electricity more efficiently and improve profitability in the process. Cisco expects a market opportunity of $15 billion to $20 billion annually over the next few years [3].
Cisco’s expertise with routers and switches
Cisco has consistently been a global leader in network routers and switches. With respect to the smart grid, the company offers its Connected Grid Router (CGR) 2010 and Connected Grid Switch (CGS) 2520 products designed to aid utility companies.
Given Cisco’s record of high market share in routers and switches, we expect that the company will make every effort to gain lead in smart grid market as well. If Cisco can gain a share of even 20% in this market, a back of the envelope calculation shows a potential 6% to 7% upside to Cisco’s stock based on a cost structure similar to that for Cisco’s current router and switch products.
You can see the complete $25 Trefis price estimate for Cisco’s stock here.