Tonight I was debating the significance of the 20 -- 30% price cuts that ASND's [mis]management anticipates in the coming quarters. The person I was addressing makes the case that the price cuts portend very negatively to ASND's future. Here are my comments why I don't believe that is necessarily the case.
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>>>But that will not matter in the short term as lower margins gobble up any increased profit from the increase in sales.<<<
I'd prefer the company to preserve and expand market share, above and beyond margin concerns for the immediate near-term.
>>>If several competitor all lower prices and thus lower bottom line $'s this leads to lower stock prices for ALL of the competitors.<<<
I agree. Which is why I believe the developing battle over remote access gear revolves around gaining market share...not profit. If you can grow market share, gain customers, and win more and more contracts, you develop relationships and improve your chances of retaining those customers for future orders since their equipment is your own. And repeat business is where all the money is. Another important reason why market share is of utmost
importance to every player in remote access gear is the fact that this niche of networking equipment is projected to be one of, if not the, fastest growing segment(s) of the industry over the next several years. If you secure and entrench a fat slice of that market before it expands, the more likely you are to fully capitalize on its future revenue potential. Which is why CSCO is moving quickly in order to catch up with ASND and COMS
in this arena -- they are searching for other segments of the market with strong growth to offset the slowing growth and technological importance of router/hubs (not to mention ASND has been chipping away at CSCO's huge market share lead in that area with its GRF line). I'm confident ASND is well positioned in this price-war coming up, and will vigorously protect its market presence.
>>>By the way what % of CSCO's sales come from remote access equipment.<<<
I'm not certain, but I don't believe it's that much %-wise of total revenues. As of 2Q, they held 14% market share (Dell'Oro est.), I believe mostly at the expense of Shiva and maybe Bay, although no doubt a point or two was shaved from both ASND and COMS, as anticipated.
>>>They can afford more than anyone to cut prices on remote access gear.<<<
That's true, but CSCO will have to contend with COMS, NT+SHVA, and LU as well. All of whom are equally cash-rich, a few more so. ASND remains the leader in technology, with strong historical relationships with most of the largest customers of remote access -- it's defending its stronghold. It will lose some market share, that's no question considering the players joining the game, but I feel comfortable knowing the rest of the field will be
fighting amongst themselves for market presence at the same time. Recall earlier this year when many expected (and greatly feared) Intel's price cuts aimed at wresting market share from COMS in it's strongest arena. The end result was Intel losing marketshare despite it's indisputable stature as one of the world's richest and most powerful corporations. Being larger doesn't necessarily equate to a strategic advantage.
>>>Remember when ASND controlled 50%+ of the remote access market.<<<
I don't believe ASND ever controlled that much of the market. One of the great incentives to aquire CSCC was to combine their remote access market shares, since CSCC had likewise captured a significant chunk of the market. There was a time when SHVA and other such niche players were serious contenders in remote access...CSCO's capture of 14% market share within 18 months is impressive, but comes at the shared expense of all the
players...mostly the weaker and less dominant since they are most vulnerable (Shiva and Livingston come to mind).
We agree that price cuts are significant -- they are detrimental to ASND's margins, but this company is still in a strong and strategic position when it comes to defending its stake in remote access gear. The company will not sit idly by as competitors move in...if the fight were to ever become more than ASND can handle, it will surely be bought out or merged with a stronger entity.
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