Cisco's (Nasdaq:CSCO) Toughest Competitor May Be Partner Too

At its annual shareholder meeting Thursday, Cisco (Nasdaq:CSCO) said they see their toughest competitor going forward as Huawei ZT, but hinted they may also work together as partners as well.

Concerning their R&D focus, security was identified as its top priority, especially as cloud computing continues to expand.

Ticonderoga Securities reported this from the meeting:

"John Chambers presented a business review for shareholders. He highlighted the recent soft outlook that surprised the company as orders began to fall off during the last couple of weeks of October. Both the public sector (i.e., state & local) and cable were focused on the most during the meeting. In light of last week's sharp sell-off in the shares, the stock is trading at just 10x (ex-cash) our conservative CY11 pro forma EPS estimate, which is 12% below the Street."

"John Chambers remains adamant that for large corporations such as Cisco to repatriate capital from overseas markets to the U.S., a more favorable tax policy will need to be implemented. Keep in mind, Cisco announced plans for a 1-2% dividend payout with the upper end of this range possible if a more favorable tax policy is implemented. Cisco exited 1QFY11 with $38.9 billion in total cash, of which $35.1 billion is held outside the U.S. market.

"Regarding the ANS and WAAS markets, John Chambers acknowledged the market is not large at $1.5 billion but indicated that Cisco will give F5 Networks (Nasdaq:FFIV)(Neutral) and Riverbed (Nasdaq:RVBD)(NR) 'a good run for their money' over the next couple of years. Additionally, security was highlighted as the #1 priority for Cisco's R&D department, and increased investment in this area began over the past couple of months. Clearly, with the shift toward cloud computing architectures, security has become a growing concern.

"Regarding Cisco's toughest competitors in the future, John Chambers highlighted Huawei. Surprisingly, he mentioned that Huawei ZTE could be a partner for Cisco in the future."

Cisco closed Thursday at $19.61, gaining $0.20, or 1.06 percent. Ticonderoga has a price target of $28, and maintains their "Buy" rating on the company.