Despite Mixed Quarterly Results, Polycom Well Positioned

Polycom’s third-quarter results weren’t great.

Yes, the company’s revenue surpassed the expectations of analysts, and it gave relatively good guidance for its fourth quarter, but it seems to have lost share to Tandberg in the lucrative market for videoconferencing systems.

Polycom’s older voice-conferencing product portfolio picked up the slack, showing sequential improvement. But that’s not the growth market the company is targeting, and concerns about rising costs and competitive positioning, especially in light of Tandberg’s pending acquisition by Cisco, are warranted.

Nonetheless, Cisco’s Tandberg acquisition isn’t all bad news for Polycom. The company stands to benefit as Cisco competitors that are (or were) former Tandberg partners consider their strategic options. Microsoft, HP, and IBM are likely to gravitate toward Polycom in the months ahead.

I don’t necessarily see Polycom being snapped up in an imminent acquisition, but the company can benefit from partnerships with companies disinclined to continue working with Tandberg as it becomes assimilated into the Cisco corporate machine.

In the near term, HP will be partnering aggressively with Polycom, as the company’s CEO Robert Hagerty intimated in an interview with Reuters, excerpted as follows:

“We’re getting attention. There’s a lot of discussion going on,” Hagerty said. “We’re taking a lot more phone calls, a lot more people inbounding into Polycom, a lot more attention from strategic folks, like the forementioned Microsoft, IBM, Avaya-Nortel, HP.”

Hagerty suggested that Polycom was talking to HP. HP is also a key Tandberg partner and because of its rivalry with Cisco, analysts think Polycom could gain.

“We sure think it’s a huge opportunity and we believe we can capitalize on it. At least we certainly hope we can.”

If Cisco can mollify Tandberg’s dissident shareholders and close the acquisition — which I believe will happen in the next couple weeks — the networking giant clearly looks poised to solidify its status as a dominant player in the telepresence and videoconferencing-systems markets.

Still, Polycom is far from a lost cause. It stands to solidify its position as a strong and capable number-two player, and it will be an acquisition target for a strategic partner that decides it must have a direct stake in the action.

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