Cisco Systems, Inc. (NASDAQ:CSCO) Likely To Be Hurt By Telecom’s SDN Strategy

With the inclination of telecom companies towards implementation of software-defined network (or SDN) strategy, networking players such as Cisco Systems, Inc. (NASDAQ:CSCO) and Juniper Networks, Inc. (NYSE:JNPR) are likely to face the threat. Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) have revealed about their plans to replace Juniper and Cisco with the SDN solutions.

Learn what the indicators are telling the analyst about CSCO.

Telecom giants likely to hurt Juniper and Cisco

This will create a vital impact on the two networking companies because they receive big businesses from the aforesaid telecom companies for router products and switches. It may also be said that these products are their major survival retreats since Cisco alone, earns approximately 60% of the total revenue from routers and switches.

Telecom’s benefit; Juniper and Cisco’s loss

Lately, AT&T as well as Verizon has indicated that they were planning to replace networking solutions from these two companies with the white-box companies that are much cheaper in rate. The reason these two telecom companies are planning this refurbishment in the form of SDN, is because it will not just enable them bring down the cost, but also help in getting flexibility in terms of network customization. AT&T has in fact, also named this product as Domain 2.0. Meanwhile, Verizon has given hints of being involved in SDN implementation rather more aggressively.

According to the Rayno Report, Cumulus Media Inc (NASDAQ:CMLS) and Pica8 could be the vendors of white-box to Verizon.

AT&T and Verizon focusing capital expenditure slashing

Both these telecom companies are looking forward to the SDN strategy because they are eyeing slashing of the capital expenditure. During the fourth quarter 2014 earnings announcement, AT&T had already said that it was expecting the downfall of capital expenditure to $18.0 billion in 2015, from previous year’s $21.4 billion. Verizon, in the meanwhile, will slash the capital expenditure to somewhere between $17 -$18 billion this year, in comparison to previous year’s $17.2 billion.

 

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Scott Coper

Scott Coper

Coper graduated from the University of Chicagi with majors in political science and journalism.