We upgrade our recommendation on Polycom Inc. (PLCM) to Outperform based on our view that management mostly resolved the poor execution problems of marketing and sales, which was the primary reason for the previous quarter’s disappointing performance. Polycom’s latest software-centric business model has significantly raised its overall market opportunity.
Despite facing competitive pressure from Cisco, Polycom’s Network Infrastructure Systems businesses grew 33.7% in the previous quarter. Strong momentum of the Network Infrastructure division is a significant positive for Polycom since this division drives the company’s overall margin. We believe long-term fundamentals of the video conferencing industry remain compelling. Meanwhile, the stock price dropped by nearly 52.5% in the last year and is currently trading at attractive multiples with respect to several valuation metrics compared to its peers.
Industry leading unified collaborative solutions of Polycom received huge market traction, especially from the emerging markets of China and India. Polycom’s state-of-the-art unified communications technology integrates video conferencing and instant messaging while enabling data transfer from one communications platform to a different platform. At present, Polycom remains the only pure play unified collaborative solutions provider. Currently, the company is a leading solutions provider for video conferencing, with an estimated 40% market share.
Polycom has launched a software platform called RealPresence. This platform can interoperate among a variety of devices and other platforms. The “Polycom Open Collaboration Network” enables the company to achieve significant revenue and market share with the help of its business partners. The company has formed a consortium of open video exchange cloud with 14 leading telecom service provider throughout the world. Notable among them are Verizon Communications Inc. (VZ), AT&T Inc. (T), and Telefonica S.A. (TEF). This consortium will deliver business-to-business (B2B) video conferencing through the cloud network.
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