Are Cisco’s Rivals Undervalued?

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By one large measure--market capitalization--Cisco has all but flattened the competition in the past two years. Its market cap alone is two-and-one-half times that of 11 of its largest competitors combined.

That's right: Cisco is worth nearly two-and-one-half times more than the combined market caps of Alcatel, Ciena, Enterasys, Extreme Networks, Foundry Networks, Juniper, Lucent, Nortel, Redback, Riverstone and Sycamore. As of press time, Cisco's market cap was $110.12 billion. The others? Just $43.38 billion combined--a far cry from two years ago when these same companies together were worth $156 billion (and Cisco alone was worth $135 billion).

At his recent company conference for business partners, a proud but cautious John Chambers, Cisco's CEO, said the numbers suggest that Wall Street and the financial press believe "our future to be as bright as all of our competitors combined."

But some measures suggest that Cisco's stranglehold on the future may not be as tight as it seems. Consider the following: Although Cisco owns a commanding lead in the router market, the competition has made slight gains, Gartner says. According to its recent figures for the first quarter, Juniper took market share away from Cisco in the service-provider-router market, as it did previously. "Juniper's strong showing in the edge segment boosted its unit shipments by 12 percent," Gartner reports.

Extreme Networks is also making gains. According to the company, a recent report by Dell'Oro Group shows that Extreme captured the No. 1 market-share position for Layer 3, 10 Gigabit Ethernet port shipments for the quarter ended March 2003.

In terms of price performance, other rivals are claiming leadership in key areas as well. Foundry, for example, recently announced that its new 10 Gigabit Ethernet routers in the NetIron 40G Metro router platform offer nearly twice the switching capacity of other announced platforms, at what it calls an "industry-leading price per 10 Gigabit Ethernet ports."

Is Cisco in jeopardy? Hardly. As Chambers notes, the market is consolidating. And many of his rivals, including Ciena, Enterasys and others are losing money, if not share. For now, he likes his position.

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