Multi-Vendor Approach Could Shake Cisco’s Market Share
Cisco (NASDAQ:CSCO) competes with Juniper (NYSE:JNPR) and Alcatel-Lucent in the network equipment business. The company has long held substantial global market share both in routers and switches and has consistently attempted to provide end to end needs of enterprise networks. However, Cisco’s single-vendor strategy has somewhat been slammed by Gartner, a research firm, in its recent report. [1]
Our price estimate for Cisco’s stock stands at $24.04 which is about 12% above market price.
Cisco has previously pushed for a single-vendor strategy, arguing that lesser complexity and higher vendor availability make it a better choice for enterprises. Cisco has also claimed lower operational costs and acceleration to innovation through a single-vendor strategy. [2] Gartner, however, has a different take.
- With Product Sales Sluggish, What To Expect From Cisco’s Q3 Earnings?
- Down 6% In Last 3 Months, Will Cisco Stock See A Recovery Following Q2 Results?
- Why Is Cisco Buying Splunk?
- Why The Digital Infra Theme Continues To Outperform
- What To Expect As Cisco Publishes Q3 Earnings?
- Cisco Stock Looks Like A Buy At $52
See our full analysis and $24.04 price estimate for Cisco
Gartner Suggests that Multi-Vendor is the Way to Go
Gartner states that businesses should resort to multi-vendor networks no matter what their current vendors claim. While vendors like Cisco have stated that there is lesser complexity and more costs saving in a single-vendor strategy, Gartner counters that enterprises can in fact significantly cut down on their costs and even reduce complexity of their operations by using equipment from at least two vendors. [1]
The research firm has reached this conclusion after interviewing several companies that have introduced a second vendor after previously relying solely on Cisco for their networking infrastructure needs. More specifically, Gartner concluded that a multi-vendor strategy results in costs savings of roughly 15% to 25% over a period of 5 years. [1]
The chart below is from Gartner’s report and represents the suggested approach for enterprises for their networking needs. [3]
What this Means for Cisco?
Looking at gartner’s analysis, it seems that Cisco risks losing some of its business to other vendors. This could occur if firms reach the same conclusion as Gartner and diversify their purchases. The result would be a loss of market share for Cisco and corresponding gain for competing vendors like Juniper.
The modifiable chart below illustrates how a reduction in Cisco’s market share of bottom layer switches could impact its equity value. Network switches represent the most important business for Cisco, constituting roughly 27% to its stock value by our estimates.
Notes:- Gartner slams Cisco’s single-vendor network vision, Network World, Jan 21 2011 [↩] [↩] [↩]
- Why it’s time to break out of the ‘Cisco-is-the-only-vendor-for-me’ mindset, Network World, Dec 4 2007 [↩]
- Beware the single vendor as trusted advisor: Gartner, Network World, Oct 4 2007 [↩]