Analysts Positive on Cisco-Tandberg; Worries Abound for Polycom

Analysts are still combing through the implications of Cisco Systems’s (CSCO) announcement yesterday it will spend $3 billion to buy Tandberg, a Norwegian maker of video-conferencing systems.

Catherine Trebnick with Avian Securities: The deal vaults Cisco to number one in video conferencing, with a greater-than-40% share of the market where Cisco previously had a minor share. The deal is positive as it will advance Cisco’s stated goal of focusing on video products for business uses. Trebnick thinks there’s now an increased chance that Hewlett-Packard (HPQ) will go after Polycom (PLCM).

Jason Ader, William Blair & Co.: the deal is a long-term negative for Polycom, with 30% share versus the combined companies’ 40% share. However, in the near term, the perceived scarcity value of Polycom, and the distractions that will ensue at Tandberg, could be a plus for the company. Down the road, Cisco may throw in video for free with networking and server equipment sales, a big negative for Polycom, he writes. Ader maintains a “Market Perform” rating on Polycom shares.

Mark McKechnie, Broadpoint/Amtech: the deal makes strategic and financial sense, writes McKechnie. It was paid for with some of the nearly $29 billion stockpile of cash Cisco has domiciled overseas to avoid taxes, and it should be accretive by about 2 cents per share in the July, 2011 fiscal year, he writes. Further, Tandberg’s share of video conference among small- and mid-size business customers is higher than overall, probably on the order of 50%, he writes. He thinks Cisco can help raise Tandberg’s operating profit margin to the mid- to hi-20%, versus the current low 20% rate at Tandberg. By making sure Cisco’s own video conferencing is interoperable with Tandberg’s, Cisco removes a roadblock for its own products.

Brent Bracelin, Pacific Crest Securities: The deal gives Cisco an end-to-end portfolio of video products “from the desktop to the boardroom,” writes Bracelin. As the company weaves video into so-called unified communications products, Cisco could take a larger share of IT spending. Bracelin maintains a $30 price target on Cisco shares and rates them “Outperform.”