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Cisco, Ericsson Partner to Get More Deals, Boost Top Line

Zacks Equity Research

Shares of Cisco Systems, Inc. CSCO have performed more or less in line with the broader Zacks Computer Networking industry on a year-to-date basis. While the industry generated a positive return of 11.6%, the stock returned 12.4%.

The not-so-impressive performance of the stock could be due to intensifying competition from several smaller players, slowing order growth from service providers and challenges in the emerging markets.

Meanwhile, per a Reuters report, the company recently announced an expansion of the partnership it entered into in late 2015 with Ericsson. This is expected to position it better to win clients both in the corporate as well as the public sector.

The objective of the partnership will be to generate $1 billion in revenues for each of the companies by 2018.

What Does this Mean for Cisco?

Notably, the Cisco-Ericsson alliance won more than 60 deals during the past year from clients mostly in the telecom operations business. In 2017, the companies will continue to focus on winning more deals from the enterprise and the public sector.

On the one hand, the renewed partnership will enable Cisco to foray into new emerging markets amid a declining switching business. On the other hand, the alliance will help Ericsson to foray into sectors that have huge growth potential such as Internet of Things (IoT), enterprise security, Wi-Fi and data centers.

As per an IDC report, the IoT ecosystem is estimated to be worth $1.7 trillion by 2020. Per another IDC report, worldwide spending on enterprise security is estimated to reach $3.21 billion by 2020 from $1.76 billion in 2015, representing a CAGR of 12.7%.

Similarly, datacenters and Wi-Fi are also emerging sectors that have huge growth potential. Given the scope these segments offer, we expect the alliance between the two companies to meaningfully contribute to the top line of both the companies.

CISCO SYSTEMS Price

CISCO SYSTEMS Price | CISCO SYSTEMS Quote

Zacks Rank

At present, Cisco carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology space are Lantronix, Inc. LTRX sporting a Zacks Rank #1 (Strong Buy) and Brocade Communications Systems, Inc. BRCD and Ixia XXIA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, the consensus estimate for Lantronix’s current year has narrowed down to a loss of 16 cents from a loss of 20 cents over the last 60 days.

Similarly, the consensus estimate for Brocade Communications’ current year has improved to 80 cents from 78 cents over the last 60 days.

Last but not the least, the consensus estimate for Ixia’s current year has improved to 48 cents from 38 cents over the last 60 days.

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