Increased Growth Potential for Cisco in Home Networking Market

In addition to Cisco having a strong foothold in network routers and switches market for enterprises, the company as well has a large presence in home networking products, which includes networking and communication devices and software for household users. The company sells these products pursuant to this agreement the Linksys brand.

Cisco competes with so then-established players like D-Link and Netgear in the home networking market. We expect slower growth going forward and for the market share to stabilize at around 26% over the then and there few years.

The home networking products market in 2003

Cisco entered the home networking products market in 2003 by acquiring Linksys and has since at that time grown consistently. Factors just as strong brand image, acquisitions, and wide distribution network have contributed to this growth.

Cisco offers a vast range of products just as IP phones, switches, modems, routers, adapters, media hubs, and cameras in accordance with the Linksys brand, which is quite popular among consumers. The company has a wider scale and distribution network compared to some of its smaller competitors, which has been an important factor in boosting its market share.

A couple of factors could lead to faster market growth including the increasing penetration of broadband services globally which increases the need for communication devices just as Cisco’s. As well international markets provide some growth opportunities. Last year, Cisco appointed Compuage Infocom as the national distributor of Linksys products in India. [1] Such steps are going to furthermore strengthen Cisco’s presence in developing countries.

Market to lift its market presence

Cisco has often acquired key players in a market to lift its market presence. Afterwards its market share dropped by around 5 percentage points in 2005-06 due to better offerings from competitors, Cisco made a comeback by acquiring Sipura Technologies, a VoIP (Voice over Internet Protocol) phone adapter manufacturer, and later regained its share. In 2009, the company acquired Pure Digital, the maker of Flip video camcorders, which we included in this division. Cisco as well recently announced Valet, a line of consumer home networking routers which combines research of Linksys and simplicity of Flip. [2]

As a scenario, if the home networking market doubled from our current estimates of $2.5 billion in 2010 to around $5 billion in the then few years and Cisco could grow its market share to around 40% from 26% currently, this would add a few percentage points to our price estimate so it’s not a large driver for its stock price for however.

However, given the increased needs for these devices and global relevance as broadband, VoIP, satellite and other channels for content reach the household, Cisco might decide to push furthermore into this market given its global distribution advantage and then known brand. This could be an interesting area of growth and would contribute to the networking business beyond our current estimates.