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Cisco: Europe third fastest growing segment for the group

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Dominant Ethernet switch manufacturer in UK and Europe:
The largest Ethernet switch manufacturer and distributor globally with market share of 65% (2010: 71.5%) in 2011. Cisco offers routing and switching along with advanced networking & communication technologies across 90 countries globally. Switches constitute the core segment for the enterprise accounting for approximately 34% (2008: 34%) of group revenues in 2010.

Europe is one of the core markets for Cisco worth US$8.04 billion witnessing annual growth of 4%. Cisco is publicly traded on NASDAQ with market capitalization of US$84.6 billion (September 2011). The company has flagship manufacturing facility in Mexico with strong dependency on third party contract manufacturing worldwide.

UK networking equipment market to reach US$13.9 billion by 2014:
United Kingdom communication equipment value sales stood at US$1.22 billion, with year-on-year decline of 2% in 2010. The market is stipulated to reach US$1.19 billion, with annual drop of 1% over the next 3-4 years (2010-2014). The domestic market is the third leading across Europe accounting for 12% followed by Germany and France.

On the other hand, networking equipment market stood at US$10.4 billion, with year-on-year growth of 4.1% (2009-2010). Switches & routers are the biggest networking equipment segment across United Kingdom contributing 41% of total regional value sales. Client connect devices are second biggest constituting 30% of total UK networking equipment segment.

IP network and security centric growth outlook in United Kingdom:
Cisco has been facing steep competitive pressures from its closest competitors, i.e., Alcatel-Lucent and Juniper Networks in United Kingdom and Europe. In 2011, the company acquired 100% equity in IP network equipment based enterprise Axiom Systems in United Kingdom. The company has further improved capital and research expenditure into security, UCS, services, and the service provider segments.

Cisco plans to focus on providing end-to-end integrated network equipment solution and product portfolio to improve customer retention and loyalty. The group is facing declining net margins and reducing workforce by 10,000 to enhance operating synergies in 2011. Can Cisco retain its market positioning across UK networking equipment segment in the next 2-3 years?

Cisco share price was trading at US$25 close to previous low during dot com bubble burst in 2000. In Q3 2011, the core segment, i.e., switches value sales dropped by 9% to US$3.3 billion slightly offset by improved business environment across niche segments (Connected Home, collaboration technologies, security etc). Cisco's edge router market share stood at 37% globally with decline of approximately 36% in past 5 years. The company plans to aggressively expand business portfolio across concentrated on core routing, switching and services, collaboration, data center virtualization, architectures, and video in next 2-3 years worldwide. Can Cisco regain its lost market share of Juniper and Alcatel-Lucent in United Kingdom and Europe?

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