Analyst: weak demand, more competition for Polycom

Demand for video teleconferencing technology sold by companies like Polycom Inc. is dropping off with the deteriorating economy and growing competition, a Jefferies & Co. analyst warned Monday as he cut his outlook for the company.

"We have touched base with several of our industry contacts and believe demand for video conferencing ... has deteriorated in recent months" because of cutbacks in capital spending, Analyst William Choi told investors in a research report.

He said both Pleasanton, Calif.-based Polycom and its competitor Tandberg ASA, based in Lysaker, Norway, have been hurt by the economic slowdown. Be he said Tandberg is still winning deals with its video infrastructure products.

Choi lowered his price target for Polycom to $15 from $24.

On a positive note, Choi said interest in video conferencing is still rising and should remain a growing industry when businesses start spending again. And he said his checks have not turned up any canceled orders for Polycom, though customers have delayed their purchases.

On top of the recession, however, competition in the video conferencing market has expanded over the past two years, Choi said, noting Cisco Systems Inc. and LifeSize Communications Inc. have joined the fray.

Taken together, both trends will present a challenge for Polycom in 2009, said Choi, who reiterated a "Buy" rating on shares but lowered his earnings and sales estimates for the company. He now expects Polycom to report a profit of $1.15 per share on $1.01 billion in sales in 2009, compared with a previous estimate of $1.60 per share on $1.15 billion.

That puts him well below the average analyst projection of $1.53 per share and sales of $1.12 billion, according to polling by Thomson Reuters.

Polycom shares dropped 22 cents to $14.07 in premarket trading after closing Friday at $14.29.