Tech hasn't really performed this year, though it was one of many fund managers' top ideas for 2010. Just about the only interesting stock in the sector has been Apple (NASDAQ:AAPL), due to the excitement over iPhones and iPads.
But quietly, Cisco (NASDAQ:CSCO) has been doing rather well, though its shares haven't. Following a dreadful 2009 with earnings cut by a quarter, the company saw rapid recovery in quarterly earnings in Q1 and Q2 this year.
The key to Cisco is not individual products, but the fact that it can enable enterprise-wide collaboration across a number of end points and infrastructure products [1] . While its competitors have to use partnerships to provide total network solutions, Cisco can now offer a total solution using its own products (plus storage from EMC).
The move from simply offering routers to competing across the entire network is not without risk. Cisco used to work with companies like HP and IBM - now it's competing with them, notably in the server space, where it's also running up against Dell. The opportunity, of course, is immense, as cloud computing gathers pace (Cisco is working with VMWare to sell private clouds) and both storage requirements and data transmission amounts and speeds increase.
Cisco is already the leader in many of its markets. For instance in network security, with 35% of the market, it's streets ahead of Juniper and Check Point, which have only 10% each [2] . And it has 70% of the ethernet switch market.
Across all its markets, it competes most directly with Juniper. There are other competitors across the range - Ciena for instance offers optical networks with a rather different architecture, and Avaya, which picked up Nortel's assets in a fire sale, is competing strongly in the market for unified communications systems. But I wouldn't bet on anyone managing to dethrone Cisco this time round - its lead is simply too great. The major networking markets have recovered well from the 2009 lows - industry analyst Infonetics says the Ethernet switch market saw a 23% sequential increase in revenues in the first quarter of the year [3] . And Cisco is certainly getting its share of this growth - in fact, possibly more than its share, as it has been regaining market share in carrier ethernet.
That's what makes me interested in Cisco…
