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Polycom Inc (PLCM), Cisco Systems, Inc. (CSCO): Plenty Of Risks And Rewards With This IT Company

Unified communications specialist Polycom Inc (NASDAQ:PLCM) is one of the most interesting high risk/reward situations in the market place today. It’s not a stock for widows and orphans, but if you looking for a speculative investment with a lot of upside then Polycom Inc (NASDAQ:PLCM) might fit the bill.

3 Cheap Tech Stocks with Great Growth Potential

High risk…
There are three key concerns with Polycom Inc (NASDAQ:PLCM). The first is that it is a small company (around $1.75 billion) competing against a giant in the tech world, namely Cisco Systems, Inc. (NASDAQ:CSCO). The latter can easily subsidize an aggressive market share grab, so Polycom Inc (NASDAQ:PLCM) is likely to be forced into constantly innovating in order to retain its position.

The second is that unified communication systems are seen as part of discretionary IT spending. In other words, corporations tend to invest in these video-conferencing systems when they are in growth mode, rather than in the current cautious spending environment. Indeed, you can see this by looking at the recent growth in Polycom Inc (NASDAQ:PLCM)’s sales and Cisco Systems, Inc. (NASDAQ:CSCO)’s collaboration segment revenue.

source: Company accounts

While the first two risks are considerable, they can also be opportunities if Polycom Inc (NASDAQ:PLCM) gets product innovation right and if the macro-environment improves. However, the third risk comes with a more significant long-term threat.

Simply put, Polycom and Cisco Systems, Inc. (NASDAQ:CSCO)’s collaboration segment may be operating within a market in a structural decline.

Current trends in IT spending are in favor of outsourcing and virtualizing IT infrastructure into the cloud, rather than purchasing dedicated hardware solutions

Corporate IT departments are getting used to using open platforms, and the desirability of being tied to one solution provider for video conferencing is questionable

Mobility has been one of key buzzwords of IT spending this year, and investing in a solution that may require a fixed location is not really in line with this trend

The shift to cloud and mobility based solutions doesn’t look like it is slowing anytime soon, and the question for Cisco Systems, Inc. (NASDAQ:CSCO) and Polycom is whether they can continue to attract purchasers to their dedicated video-conferencing systems?

…and high reward
The arguments above present existentialist dangers to the long-term viability of its business, but investors should not lose sight of the potential reward in buying the share. Arguably the stock is being priced with the assumption of long-term revenue and cash flow declines in mind.

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