Few tech stocks are as hated right now as Cisco . In fact, investors have such a low opinion of the stock that it's currently trading lower than where it was a decade ago, despite the company having seen considerable growth in both its top and bottom lines.

Cisco's precarious position is eerily reminiscent of software giant Microsoft , which investors also loved to hate. Microsoft was seen as an embodiment of the PC, and PCs were feared to be quickly going the way of the dinosaur after Apple  popularized iPads and iPhones, and Google brought the joy of the smartphone to the masses with its hugely popular Android OS. Cisco, the giant switch manufacturer, is nowadays seen as a huge, clumsy behemoth that cannot reinvent itself fast enough to keep pace with changing technology. But, that perception is just wrong.

Although there is a whole gamut of what one could point out as being "wrong" with Cisco, the perceived threat that surrounds software-defined networks, or SDN, caps it all. Cisco is the dominant force in networking hardware, and many of its customers are locked in for many years due to the company's proprietary products. Cisco integrates embedded software in its networking hardware. SDN, on the other hand, makes it possible for companies to purchase commodity hardware, then install third-party software. This effectively cuts out Cisco from the supply chain. Google is already trying to give Cisco a scare by ordering its switches directly from Asia.


A recent article by Barron's examined the threat of SDN to Cisco, and noted that the technology is still in its early stages. According to Barron's, there won't be any meaningful adoption of SDN with adequate potential to shuffle the decks for networking hardware companies such as Cisco until 2017.

Cisco has not just been sitting on its derriere and cursing its luck. The company recently unveiled a line of hybrid switches it has dubbed "Insieme," which allow customers to try out SDN while still maintaining the need for Cisco's proprietary products.

According to Barron's, as many as 20% of Cisco's customers might eventually consider trying out hybrid switches. Cisco says that Insieme switches ''are 27% less expensive'' over the long run than other commodity hardware, and cites strong sales of the new switches to buttress its point.

Pessimism surrounding the weakness Cisco is experiencing in emerging markets is also probably overdone since the majority of the company's income comes from the American market.

 

Source: Cisco products

Business model transitions
Cisco is currently in the throes of drastic business model transitions and product cycle transitions under the tutelage of CEO John Chambers. The networking equipment maker has been struggling to find a regular cadence of revenue as it continues to evolve its product portfolio.

Cisco has been withdrawing from the low-margin set-top box hardware business. It is also remodeling its service provider video business to a recurring revenue model that is built around NDS' cloud computing platform. The company acquired NDS in 2012.


Increase your money and finance knowledge from home

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

What Is Your Risk Tolerance?

Answer the question "What type of investor am I?".

View Course »

Add a Comment

*0 / 3000 Character Maximum