Spotlight: Cisco Systems, Inc.

What does the future hold for Cisco (NASDAQ:CSCO), a manufacturer of IP-based networking products and other related products concerning IT and communications? The first thing to keep in mind is that Cisco has to deal with ever more competitors. Cisco used to focus on the hardware market, but due to recent technology developments, Cisco is also experiencing competition from companies on other markets, such as the software market. We see a decline in the demand for hardware communications and networks, because hardware is often much more expensive than software, hence the shift to software based technologies in networking and IT-communications. Meanwhile, Cisco is having trouble adjusting to this new market environment, which is reflected in the slow reaction to this change, causing Cisco to be left behind on their rivals. Moreover, some top executives of Cisco sold their shares of Cisco recently, which is often a bad sign, because it reflects that even the top executives feel they can not create any more value for Cisco. However, Cisco still managed to gain 9,5% since 15 October. A reason for this could be a new developing market; The Internet of Things. The Internet of Things is the market concerning the connection of all devices (telephones, laptops, tablets etc.) or in other words a machine-to-machine network. Cisco's CEO recently claimed that the market for the Internet of Things could be worth $19 trillion in 2020. Since Cisco is highly present in this market, Cisco is likely to gain huge profits from this market segment. However, this statement lacks credibility, because the top executives sold their own Cisco stocks and they would not have done this if they really believed Cisco to increase its profits substantially. A better, or more conservative, approximation of the Internet of Things market is $1.9 trillion in 2020. This is only 10% of the approximation given by Cisco's CEO. Consequently, this could harm potential investors who expect a total value of $19 trillion if this market turns out to be only $1.9 trillion. In conclusion, we believe that Cisco really does have an opportunity on the Internet of Things market, but we also feel that Cisco is overstating its chances, especially since they have a tendency to lag behind their competitors. Therefore, we do not advice the Cisco stock, but you may want to consider competitors, because this market is expanding rapidly.