Cisco Systems reigns as the biggest seller of machines used to direct Internet traffic, but new rivals want to eat into its meat-and-potatoes business with lower prices--cutting into fat profit margins. Computer maker Dell Computer and China's largest telecom equipment maker, Huawei Technologies, are hitting the marketplace with their own networking gear, driving down prices.
"Dell has the right channels of distribution, and that scares the hell out of Cisco," said Frank Dzubeck, a strategy consultant and president of Communications Networks Architects. "And if Cisco had one global worst nightmare, it's Huawei."
Other technology markets, such as data storage and personal computers, have been radically changed as Dell and others moved in to compete on price--taking aim at market leaders such as EMC and Hewlett-Packard. For now, Cisco shrugs off the intense price competition on its switches and routers, and most industry analysts and executives agree that the immediate impact on Cisco is minimal. In fact, Cisco's profit margins hit an all-time high of 69 percent last quarter.
"I wouldn't go out and short Cisco (stock) tomorrow," said Shawn Campbell, analyst with Northern Trust's asset management arm, which owned 52.7 million shares in September.
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News source: c|net