When Cisco Systems (Nasdaq: CSCO) announced that it wanted to buy video conferencing expert Tandberg, the market barely shrugged. The largest independent competitor in that space after the Cisco-Tandberg marriage is Rule Breakers recommendation Polycom (Nasdaq: PLCM), and that stock hardly moved on news that Cisco is moving further into its space in a big way.
But perhaps Mr. Market was just waiting for an excuse to punish Polycom. When the company reported third-quarter earnings last night, sales came in at $243 million, a 5% sequential increase but 12% year-over-year fall. Non-GAAP earnings landed at $0.31 per share. Both metrics met or beat analyst expectations. But Polycom's stock price fell 17% overnight anyway. Ouch!
Analysts poured an avalanche of Tandberg-related questions over Polycom's management team in the earnings call, and came away with a cheerful spin on the situation more often than not. CEO Robert Hagerty said that the buyout probably will confuse Tandberg's and Cisco's TelePresence customers: "Is it going to be the Cisco solution? Is it going to be the Tandberg solution? … And which investments should you be making? I think the right answer is Polycom is the stabilizing force with superior innovation, a real strong platform. We want to get that message out."
Hagerty waxed poetic about Polycom's unique position as the last real alternative to the upcoming Cisco dominance, and mused about partnering up with someone like Microsoft (Nasdaq: MSFT) or Hewlett-Packard (NYSE: HPQ) to present a Unified Communications solution for businesses large and small. Polycom works on open standards and can provide the technology that ties together diverse communications infrastructures from vendors like HP, IBM (NYSE: IBM), Microsoft, and yes, Cisco.
You may have heard this argument before when enterprise messaging vendor Tibco Software (Nasdaq: TIBX) presented itself as the Switzerland of the data center. In that scenario, the looming behemoths are Oracle (Nasdaq: ORCL) and IBM. When Polycom faces off against Cisco, it's the same idea applied to a different market.
Maybe Polycom's proclamations of strength came across as a little bit too earnest, or even desperate. Mr. Market didn't seem to believe any of it. If Cisco is setting up to monopolize Polycom's largest market, then the drop was justified. But if you believe that the sector needs Polycom's vendor-neutral technical glue, this could be an awesome buy-in opportunity.
Me, I think Polycom shares suddenly look cheap. The comments box below is dying to hear your take.
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