One thing is as sure as death and taxes: Cisco's price premium will come down. It may not be this year, nor the next 5, but I would bet you my entire retirement that we'll see Cisco's margins come down within 5-10 years. The incoming competition from China is going to be more fierce than anything the U.S. has ever experienced before and it will affect even the mighty like Cisco.
CSCO's margins may come down, but it won't be due to China. If China can compete with CSCO on price and force CSCO's margins lower, why did competition from 3Com, Bay Networks, Cabletron in the 1990's and Extreme, Foundry and Juniper since '99 or so, FAIL to force CSCO to lower price (and lose margin). China will cause lower margins in commodity technology (like PCs and disk drives and old cell phones), but increased competition doesn't hurt entrenched monopolies (like CSCO). China's entry into the networking gear market will no more hurt CSCO's margins than a China entry into the Word Processing market would hurt MSFT. The network engineer is not going to put a few Chinese ethernet switches into his 98% CSCO network, and the PC buyer is not going to put the cheap Chinese Word Processor into his 100% MSFT Windows PC.
Sorry! Try again!
China isn't some penny ante country with an uneducated population. They are the next superpower and economically they will surpass us. I don't see anything on the horizon within the U.S. that will stop this from happening within 15-20 years.
Which of these US companies will be "surpassed" by a Chinese company in the next 15-20 years - Coke, MSFT, Ford, GE, Intel, Qualcomm, IBM, I could go on. China is a huge mass of cheap labor and a huge potential market for consumer products as their huge population gains some disposable income, but it is going to be very hard for them to surpass the US economically. I'm pretty sure they will have a massive economic collapse and the resulting civil unrest which follows that type of thing before they get even close to an economic world power. I mean, have you heard of ONE global quality Chinese company (you know, that people in Argentina, Australia, Denmark and South Africa have all heard of)?
In the mean time, Cisco has a golden opportunity to show some serious growth in the next 5 years due to VOIP coming of age, service providers moving from circuit to packet switched networks, and global migration to broadband and heavy consumption applications that use broadband. I would not be surprised at all if Cisco's stock price doubles or even triples within the next 5 years. But after that, all bets are off.
Depends on what you mean by serious growth. My concern is that although the VoiP market will have large growth, the other areas (the ethernet switch, for example) may be near saturation (what enterprise doesn't have a network yet), and perhaps not grow at all. Dell only grows ~17% per year, and they sell EVERYTHIN cheaper than EVERYONE else. CSCO's 5 year revenue growth rate may be only 10%, with stuff like VoiP growing 30% per year, but legacy stuff perhaps only growing 2% - we shall see. |
