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Cisco: US gross margin improved by 4% in 2010

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market study
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Dominant edge router provider in United States:

Cisco, the largest IP router and carrier Ethernet provider worldwide with market share of 42.5% in 2010, offers routing and switching along with advanced networking & communication technologies across 90 countries globally. Switches is the core market for Cisco constituting 33.6% (2008: 34.1%) of group revenues in 2010. United States is the flagship market-space accounting for 54% (2008: 53.6%) of total (2010). The company is publicly listed on NASDAQ with market capitalization of US$84.6 billion (September 2011). It is highly dependent on third party contract manufacturing with standalone in-house production unit in Mexico.

US communications equipment market to reach US$16.9 billion by 2014:

United States communication equipment value sales stood at US$15.2 billion, with year-on-year growth of 2% in 2010. The market is stipulated to reach US$16.9 billion, with annual growth of 2.6% in the next 3-4 years (2010-2014). The domestic market is second largest worldwide accounting for 22.3% of global communication equipment segment in 2010. On the other hand, networking equipment market stood at US$23.7 billion, with year-on-year growth of 5.5% (2009-2010). Switches is the biggest networking equipment segment across United States contributing 40% of total regional value sales. Client connect devices are second biggest constituting 12% of total US networking equipment segment.

Cloud based operational restructuring core business outlook:

In May 2011, Cisco market share in blade server worldwide stood at 9.1%. The company is aggressively enhancing its cloud based solution portfolio to improve competitive advantage and regional operating margins in core markets such as the United States. In 2011, it entered into strategic alliance with EMC incepted virtual computing environment. On the other hand, Cisco enhanced majority stake in Acadia Enterprises to horizontally and vertically integrate its cloud based product portfolio. The company has laid off close to 6,500 employees and will reduce the workforce by 10,000 to enhance operating margins on short-term basis.

Can Cisco retain its market positioning across US networking equipment segment in the next 2-3 years?

Cisco share price was trading at US$25 close to dot com burst in 2000. The company has been reducing workforce to improve margins and enhance cost synergies on long-term basis. In 2010, the company's edge router market share stood at 37% globally with decline of approximately 36% in past 5 years. It is aggressively acquiring niche assets into communication equipment segment such as Pari Networks, Inlet Technologies and newScale Inc in 2011. Although inorganic expansion is enhancing short-term competitive advantage, will Cisco regain its lost market share of Juniper and Alcatel-Lucent in United States?

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