Downside to Cisco’s Stock If Alcatel-Lucent Wins More Router Market Share

Cisco (NASDAQ:CSCO), which competes with Juniper (NYSE:JNPR) and Alcatel-Lucent (NYSE:ALU) in the routers market, has seen its edge router market share erode in the past few years. In comparison, Alcatel-Lucent gained share in 2009 at the expense of both Juniper and Cisco.

Although Cisco still commands the majority share in edge routers, the market is becoming increasingly competitive, and Cisco does face the risk of losing further market share. We estimate that there could be a 2% negative impact to Cisco’s stock if the company were to continue losing router market share to Alcatel-Lucent.

Alcatel-Lucent Is Gaining Edge Router Market Share

According to Dell’Oro research, Alcatel-Lucent was the only major vendor to have gained market share in the internet service provider router market worldwide in 2009, with an increase of about 4%. The internet service provider router market consists of edge routers as well as core routers.

In the edge router segment, Alcatel-Lucent moved past Juniper to take the #2 position with 20% market share in 2009. Alcatel-Lucent’s success can be attributed to its broad and expanding product line, a large customer base, and increasingly global presence. The company maintains that it has been focusing on delivering services in general as opposed to being occupied with video alone.

Alcatel-Lucent Is Gaining at the Expense of Cisco and Juniper

While Alcatel-Lucent has grown its market share in edge routers, Cisco’s market share has fallen from around 52% in 2005 to around 47% in 2009. Juniper has seen a similar decline in its market share from 18% in 2005 to 13.5% in 2009.

Small Downside To Stock If Cisco’s Market Share Continues To Erode

We expect Cisco’s market share to remain stable going forward, led by its R&D capabilities, established business relationships and global presence.

However, if the company’s share in edge router market continues to erode at the current rate, we estimate that Cisco will have about 35% of market share by the end of Trefis forecast period. This results in loss of around 2% to the $23 Trefis price estimate for Cisco’s stock.

You can modify our forecast above to see the impact on Cisco’s stock price if its edge router market share were to decline rather than remain flat as we forecast.

For additional analysis and forecasts, here is our complete model for Cisco’s stock.