Trends That Will Impact Cisco Systems
Telecom Pushes Tech ETFs Even Higher Last Week
Mobile data traffic
According to data compiled by Cisco Systems (CSCO) in 2013, mobile data traffic increased 70% in 2012 and doubled between 2009 and 2012. Mobile data traffic is set to further increase by an astounding 13 times between 2012 and 2017 with a majority demand of 65% expected to be fueled by video and online streaming.
An increase in penetration of mobile devices such as smartphones and tablets will drive demand for mobile data as telecom (telecommunication) companies look to upgrade networks to support and monetize growth in traffic.
Escalating mobile data traffic will also positively impact router and switch sales. As you can see in the above graph, the growth rate in the switch segment rose from 2.8% in 1Q15 to 11% in 2Q15 and then fell to 5.3% in 3Q15.
Competition in core router segment
The core router segment was historically controlled by Cisco Systems and Juniper Networks (JNPR). The companies had a combined market share in excess of 80%. The scenario has now changed with the re-entry of Alcatel-Lucent in this segment since 2012.
Market share of Alcatel-Lucent in edge routing has currently grown to 24%. The company edged out Juniper Networks to become the number-two vendor in this segment in 2010, despite entering the market in 2003. Alcatel-Lucent can now use this platform as leverage to increase market share in the core router segment as well.
Bring your own device movement
The BYOD (bring your own device) movement has caused companies to increase information technology budgets to enhance network security. Employees bringing their own mobile devices such as smartphones and tablets to work has seen a significant uptrend.
As a result, companies need to increase network security to help manage and support devices as well as reduce the threat of cyber-attacks. This presents Cisco Systems with an opportunity to not only increase revenues in the network security segment but also improve demand for routing and switching solutions.
Cisco Systems constitutes 3.78% of the PureFunds ISE Cyber Security ETF (HACK). Peers such as Palo Alto Networks (PANW) and Juniper Networks (JNPR) constitute 4.51% and 4.47% of the ETF, respectively. Cisco Systems also makes up 3.63% of the Technology Select Sector SPDR ETF (XLK).
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