In the final quarter of 2014, Cisco’s (CSCO, Financial) share price began to rise and the momentum has continued in 2015 as well. The stock has appreciated almost 30% in the last few months and, given the company’s strong fundamentals, investors may be hoping for more gains. However, I think there are several factors that can halt Cisco’s growth, which is why I think investors should consider buying Alcatel-Lucent (ALU, Financial) as the company has more room to run. Let’s take a look at the reasons why I think Alcatel will prove to be a better buy than Cisco.
Absence of trust in Cisco's products has opened up an open door for its opponent Alcatel-Lucent. Alcatel's center networking business is picking up footing in Asian markets. The organization has won contracts from China Mobile (CHL, Financial), China Telecom (CHA, Financial), and China Unicom (CHU, Financial). It has additionally picked up business in Brazil and Turkey.
Alcatel additionally earned an agreement to build an undersea communication cable that will unite Europe and Southeast Asia. Extending from Singapore to France and covering a separation of 20,000 kilometers, this link will be 20 times more effective than existing ones. It will cover 17 nations and be furnished with a limit of 24 terabits per second. While Cisco is losing steam in the developing markets, Alcatel is winning business.
I think Cisco has lost its path under CEO John Chambers. Cisco's stock price has generally underperformed the industry for the past few years, bar 2014, and I don't think it will change as long as John Chambers is the organization's CEO. The rich dividend, which now has a yield of 2.7%, has backed Cisco's share or else it would've dove further.
Chambers has been Cisco's CEO for just about two decades now. Be that as it may, I think the organization needs another initiative to push future development, which I don't think is going to happen at whatever time soon.
Internet of Things is unquestionably Cisco's most solid option to support growth. In mid-2014, Cisco acquired Tai-f Systems to help its Internet of Things endeavors, however Cisco's ROI on its acquisitions have been really poor. Cisco has neglected to develop on prominent acquisitions of Starent ($2.9b), Scientific Atlanta ($6.9b) and Webex ($3.2b) and so forth and clearly, Chambers is in charge of that.
Conclusion
After years of ordinary performance, Cisco finally rewarded investors towards the end of 2014. While the stock price has been rising consistently, I think it may soon change. Alcatel-Lucent’s growing presence and increasing market share will soon be a massive headwind for Cisco. Cisco has lost market share to Alcatel, as well as other players like Juniper. With the competition rising, there’s no guarantee that Cisco will continue moving upwards and given that the company’s board hasn’t managed to successfully integrate its mergers and acquisitions into the company’s core business, I think Cisco will struggle to make the most of Internet of Things opportunity. Hence, I think investors should consider selling Cisco in favor of Alcatel-Lucent.
