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Will Enterprise Partnership Between Apple Inc. and Cisco Systems Inc. Pay Off?

By Leo Sun - Sep 6, 2015 at 5:45PM

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Apple and Cisco's enterprise deal is a win-win for both companies.

Apple (AAPL -0.78%) and Cisco (CSCO 0.99%) have recently joined forces to create a "fast lane" for iOS business users by optimizing Cisco-powered networks for iOS devices and apps. According to the Apple press release, the partnership will also integrate iOS devices with Cisco enterprise environments so they work together "more efficiently and reliably." How will this deal help both companies in the long run?

Source: Apple

Apple's mobile enterprise ambitions
This isn't Apple's first move into the enterprise space. Last year, it partnered with IBM to sell iOS devices preloaded with Big Blue's cloud-based enterprise apps. That deal helped Apple gain a major mobile presence among IBM's enterprise customers, while IBM amassed more data for its cloud services.

During the second quarter of 2015, iOS devices accounted for 64% of all mobile enterprise device activations worldwide, compared to just 32% for Google (GOOG 1.27%) (GOOGL 0.95%) Android, and just 3% for Microsoft (MSFT 0.34%) Windows, according to Good Technology's Mobility Index report. Yet that was a notable decline from the first quarter, when iOS accounted for 72% of all enterprise activations, Android accounted for 26%, and Windows claimed just 1%.

That shift was caused by two factors. First, Google focused more tightly on the enterprise market with Android 5.0 Lollipop, which added new security features for business users. Second, sales of iPads declined as sales of Android and Windows tablets soared, causing a shift in BYOD (bring your own device) trends. iOS remains strong in regulated industries like the public, education, and healthcare sectors, but Android made significant gains in energy and manufacturing while overtaking iOS in the high tech industry.

Source: Apple

That's bad news for Apple, which is counting on the enterprise market to get iPad sales back on track. Last year, CEO Tim Cook expressed hope that the iPad's enterprise market penetration would rise from 20% to 60% over the next few years.

How Cisco and Apple could help each other
That's where Cisco comes in. Cisco, one of the world's largest networking equipment and service companies, dominates the wireless infrastructure of businesses and data centers. The company leverages that dominant position to sell all-in-one bundles of hardware and software to companies, which keeps its smaller competitors at bay.

Since Apple devices will be optimized for Cisco's "fast lanes," they will run faster than Android and Windows devices on Cisco-powered networks. The integration of iOS apps on the network level would also let Apple plant its roots deeper into enterprise networks than Google. This means businesses looking to upgrade their laptops to tablets might consider buying iPads instead, while businesses with relaxed BYOD policies might favor iPhones over other devices.

In return, Cisco can promote iOS-optimized mobile and cloud collaboration tools like Cisco Spark, Cisco Telepresence, and Cisco WebEx. Apple will also support those collaboration tools by providing a "seamless experience between iPhones and desk phones." Stronger demand for those higher-margin, subscription-based software services can offset slower growth in Cisco's hardware business, which only posted 4% sales growth but accounted for 77% of its total revenues in fiscal 2015.

Growth potential, disruptions, and challengers
The entire BYOD market -- which includes various enterprise mobility and security solutions -- could grow from $72 billion in 2013 to $266 billion by 2019, according to research company Markets and Markets. That's great news for mobile leaders like Apple and Google but bad news for BlackBerry and Microsoft.

BlackBerry, which once dominated the mobile enterprise market, has since retreated into a niche of top-tier security for government agencies. With a market share of less than 1% of all smartphones worldwide, it could be wiped out by the BYOD revolution. BlackBerry has tried to bounce back with BlackBerry Enterprise Service -- which lets companies monitor BYOD devices of various operating systems -- but 40% of its revenue still came from hardware sales last quarter.

Microsoft, which still controls the majority of enterprise PCs worldwide, has a better chance of fighting back against Apple and Google. Windows Phone didn't impress enterprise users, but Windows 10, which is scalable across phones, laptops, and PCs, could be an ideal all-in-one OS for BYOD purposes.

The key takeaway
Apple's enterprise deals with IBM and Cisco might not be as exciting as its high-profile product launches, but they can help the company keep selling iPhones and iPads long after mainstream consumer interest fades. Therefore, this gradual transformation of iPhones and iPads into enterprise devices should worry Google, Microsoft, BlackBerry, or anyone else interested in expanding in the mobile enterprise market.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$139.42 (-0.78%) $-1.10
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$44.44 (0.99%) $0.43
Microsoft Corporation Stock Quote
Microsoft Corporation
$263.41 (0.34%) $0.89
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,136.27 (0.95%) $20.17
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$135.75 (1.01%) $1.36
BlackBerry Stock Quote
$5.96 (0.93%) $0.06
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,143.60 (1.27%) $26.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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