Cisco Targets SMB Demand for VoIP Services Market by Reducing Costs, Adding Features

Cisco (NASDAQ:CSCO) recently announced cost reductions and simplifications to its VoIP (Voice over Internet Protocol or simply put internet telephony) and unified communication systems with the aim to tap into the interested but largely untapped SMB unified communications market. The advancements will allow SMBs access to “enterprise grade” IP phone systems with integrated collaboration capabilities without taxing already constrained IT and financial resources. The move could provide a much needed boost to Cisco’s top line which has been facing stiff competition from firms like Juniper (NYSE:JNPR) and Alcatel-Lucent (NYSE:ALU) in its core markets.

We currently have a $20.88 Trefis price estimate for Cisco, about 15% above the current market price. We are reviewing our estimates in light of earnings.

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Mid-market Offers Huge Potential

According to market research firm Infonetics Research, VoIP services market is expected to reach upwards of $76 billion in revenues by 2015 and the number of mobile VoIP solution users is expected to go up from 47 million in 2010 to almost 410 million by 2015. Also, the number of seats for hosted business VoIP and unified communications services is on track to more than double between 2011 and 2015. ^{[1] [2]}

While the residential segment currently makes up majority of VoIP services revenues Cisco identifies huge potential in the mid-market business segment which is poised for rapid growth.

According to Cisco:

Currently, most mid-size organizations operate aging public branch exchange (PBX) systems and old telephony applications — even though these systems scale poorly, are increasingly expensive to maintain, and fail to meet today’s business and mobility needs. While IP telephony systems offer distinct performance and efficiency benefits, many have held on to the old technology thinking that IP-based systems are beyond their budget and IT skill level.

With this announcement, Cisco is debunking the myth that IP telephony is out of the price range of mid-sized businesses by making available systems for as little as $100 per user for a 100-person organization while also including functionality that allows smaller shops to harness the power of business-changing unified communications solutions. ^[3]

We currently forecast, global IP phones shipped to increase from ~20 million in 2011 to almost 30 million by the end of our forecast period. You can see a higher growth in IP phone shipments as a result of wider adoption would result in an upside to our $20.88 Trefis price estimate for Cisco.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. VoIP Services Market to Cross $76 Billion Mark by 2015: Infonetics Research, tmcnet.com [↩]
2. Rise in VoIP solutions users predicted, teleappliant.com [↩]
3. Cisco Reduces Cost and Complexity of IP Telephony Systems While Adding Video, Instant Messaging and Presence Features Purpose-Built for Midsize Businesses, Cisco [↩]