Emerging Markets Key for Cisco and Competitors

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Cisco announced their earnings yesterday, beating analyst forecasts by 4%. Earnings were reported at 40 cents per share, compared to a 39 cents per share consensus by analysts. The stock is currently trading up over 5%. An interesting moment in the earnings call came when CEO John Chambers emphasized that he is still confident in the long term growth forecasts of 12-17% for IT infrastructure, despite the current economy.

Emerging Economies remain a large part of Cisco’s growth. Orders in India were up 20%, while orders in China were up over 30%, Mexico and Russia saw rates of over 40%. Growth rates in the US and Canada remained steady at 7%. Telepresence was up 500% year over year and Physical security 250%. Developing economies are willing to open their wallets for solid network infrastructure, which is saving them from eroding margins, and new low cost competitors.

One of these competitors, Juniper Networks, has been making inroads onto Cisco’s turf. They have also recently picked up some talent in their new CEO, Kevin Johnson, who came over from Microsoft. At Microsoft Kevin Johnson was head of the Platform and Services Division, where he lead product development and marketing efforts. His Experience managing large teams will be vital as they take Cisco head on in the network infrastructure market. Cisco CEO John Chamber has even praised the company saying, “We have to make it a little tougher for them”, after Juniper posted good quarterly results.

Juniper’s income for the quarter was up 32% on a year over year basis on early sales of the EX-series network switches. The market for network switches are projected to grow to $18.6 billion by the year 2009, compared to the router market which is only projected to reach $4.8 billion. Juniper hopes to grab a huge chunk from Cisco, who as of the 3rd quarter 2007 had a 72% chunk of the whole market, with Nortel and 3Com fighting for the remaining 28%.

It will be interesting whether Juniper can take on Cisco’s dominance, and grab a chunk of emerging markets. I’d love to hear your thoughts on the subject.

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