Cisco Could Gain on Small Businesses Spending

Cisco (NASDAQ:CSCO), which competes with the likes of Juniper (NYSE:JNPR), is the market leader when it comes to routers and switches.  However, most of Cisco’s sales come from large enterprises and the company maintains that it still  has an opportunity to grow significantly when it comes to small businesses.

Cisco recently launched a new range of products, enhanced services and support aimed at small businesses.  The new products include a class of small business switches, new IP phones and new video monitoring software with alerts.  Our current price estimate of $24.04 is around 25% ahead of the current market price.

Small Business Spending Picking Up Globally

According to a poll done this summer, HSBC’s semi-annual global small business confidence monitor indicates that confidence index among small and medium-sized enterprises in 21 global markets increased to 118 in Q2 2010 compared to 111 in Q4 2009 ^[1]. This implies that these businesses are more confident in the economic recovery and plan to increase their hiring and investments to fuel growth. According to the same report, about 41% of the small and medium-sized enterprises plan to increase their capital investments and about 26% of them plan to hire ^[1].

The above figures suggest that small businesses are likely to fuel the market growth for networking equipment. This will help companies like Cisco to expand their sales of products like switches, IP phones and advanced monitoring systems. You can see how improvement in bottom layer switch market can impact Cisco’s stock.

Cisco’s Low Penetration Equals Opportunity

Back in 2009, Cisco maintained that the small business segment was still under-penetrated and that their market share according to industry analysts was in low double-digits ^[2]. Thus, there exists a significant opportunity for Cisco to expand into small businesses and grow its market share. Cisco’s products tend to be relatively expensive and are therefore mostly adopted by large enterprises that can afford it. This can partially explain Cisco’s low share in small businesses.

However the company has been expanding its portfolio of products specifically designed for small businesses. Success in this segment can help Cisco gain global market share in some of its most important product segments like bottom layer switches. You can modify the forecast below to see how bottom layer switch market share impacts Cisco’s stock.

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

1. Confidence is high among small businesses globally: poll [↩] [↩]
2. Cisco: Small Business, Smart Grid to Drive Growth [↩]