Cisco pays $3B for a video conferencing company Tandberg; deal will help Cisco sell more switches and routers

Cisco announced today an agreement to acquire Tandberg, the Norwegian video-conferencing firm, for $3 billion.  Cisco views video conferencing delivered over the web through IP telephones, computers and video conferencing terminals as a growth opportunity for the company.  In 2007, Cisco acquired WebEx, a web conferencing software company, for $3.2 billion.  However, even with the Tandberg acquisition, less than 8% of Cisco’s stock value will be attributable to the combination of IP telephony, web and video conferencing.

The main sources of value for Cisco remain the switch (27% of stock) and router (15% of stock) businesses where the company dominates the market.  Cisco has increased its share in the $18 billion Bottom Layer Switch market from 50% in 2005 to about 61% today. As global data traffic continues to grow, driven in part by increasing video and web conferencing, managing that traffic on the internet will require more switch and router hardware.  Cisco will be positioned to capitalize on this trend by being the hardware and software provider for the conferencing equipment (IP telephones, conferencing terminals) as well the underlying switches and routers used to manage the data traffic.

Within Cisco’s content on our platform, you can see how growth in Cisco’s Bottom Layer Switch Market Share would impact the company’s stock.  We have not yet incorporated the Tandberg acquisition into our Cisco analysis but plan to do so soon.