Boston, MA, 03/21/2014 – The routers, switches, network operating system and other hardware and software that Cisco Systems Inc. (NASDAQ:CSCO) sells make up a huge part of the infrastructure that lies behind the World Wide Web.
Cisco is facing challenges from newer companies such as Juniper Networks, Inc. (NYSE:JNPR), VMware, Inc. (NYSE:VMW) and Dell which sell cheaper networking equipment or use Software Defined Networking (SDN) to bypass the need for expensive Cisco hardware.
Cisco has made some multibillion dollar acquisitions which did not provide good return on investment. A key threat for Cisco remains the rise of software defined networking. Hopefully, Cisco can convert these challenges into opportunities in a world that is moving towards Big Data and Internet of Things. Even in SDN, Cisco has come up with its offering called Application Centric Infrastructure (ACI) SDN.
However, since Cisco is so well-entrenched in the enterprise networking market (and has a suite of products which enables Cisco Systems Inc. (NASDAQ:CSCO) to take care of end-to-end networking needs of clients), it will be difficult for new competitors to displace Cisco so easily. Enterprises tend to be conservative in initiatives such as replacing networking infrastructure since it is a huge and complex transition.
Analysts predict that the shares will remain range-bound for the next year since there are no major growth catalysts for the company.
However Cisco Systems Inc. (NASDAQ:CSCO) has been paying out dividends every quarter since 2010 and has bought back shares aggressively. Cisco has a lot of cash ($47 billion as of last quarter), most of which is held overseas. Hence, it has been selling debt for those share repurchases. This makes sense in a low interest scenario. Hopefully, when the U.S. tax code is finally reformed, Cisco will be able to bring its cash back into the U.S. without the burden of a high tax rate.
Cisco is on course to return about $18 billion via dividend and share buyback this year. Over the next four years, Cisco Systems Inc. (NASDAQ:CSCO) may well return at least $50 to $60 billion to shareholders. This should provide strong support to its shares. Once its turnaround plans start bearing fruit, its stock is likely to reach $25 levels from its present $21 level.