Recently, Polycom Inc (PLCM) introduced two new infrastructure platforms for visual communication network solutions that will enable large organizations, government agencies, educational institutions, and healthcare companies to deliver enterprise-wide and business-to-business video services with state-of-the-art quality, scalability and reliability. 

These products are (1) RMX 4000, a multipoint conferencing platform that simultaneously supports hundreds of HD video calls and more than a thousand video and audio conference calls (2) RSS 4000, a high-capacity recording and streaming server through which users will be able to easily and cost-effectively create and stream HD video and content using any telepresence and video conferencing systems. 

Polycom is a leading solutions provider for video conferencing, with an estimated 30%-40% share of the market. Prompted by the severe economic downturn, business enterprises on a global basis are restricting travel budgets to control costs. This makes Polycom’s high-definition telepresence solutions a cost-effective alternative in an increasingly interactive world. 

According to Gartner Inc (IT), the video conferencing market will grow at a CAGR (compound annual growth rate) of 17.8% between 2008 and 2013, rising from $3.8 billion to reach $8.6 billion. Despite these positives, Polycom is facing pricing pressure in the video conferencing market which is fiercely competitive. 

Recently, Cisco System Inc (CSCO) has decided to purchase Tandberg TV of Norway for approximately $2.97 billion. Tandberg is the global leader in the uniform collaborative communications market. The merged entity will definitely be a much bigger threat to Polycom. 

In addition, Citrix Systems Inc (CTXS), 3COM Corp (COMS), and LifeSize Communications Inc are the other major players in this market. In this competitive industry scenario, we consider product innovation to be very critical for Polycom to maintain its market share. 

From a financial perspective, the company has a solid financial position with approximately $4.42 per share of cash and marketable securities and no outstanding debt at the end of the previous quarter. This will allow Polycom to carry on its R&D activities. A strong net cash position coupled with continued free cash flow generation remains a possible investment catalyst for the company. We maintain our Outperform recommendation for Polycom.
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