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Friday, March 16, 2007

Pick 'o the Month - a two'fer

Usually I focus on a single smaller, more obscure stock. In this case, I would like to submit two stocks, a large-cap, Cisco Systems (CSCO), and a small-cap, Big Band Networks (BBND). These two stocks embody a resurgence in the network infrastructure space. That theme is what ties these two picks together.

With the rising tide of video, music and movies downloaded over the Internet and cable companies offering bundled TV, phone and Internet, we have finally absorbed the glut of network capacity created during the Internet bubble. This deluge of multimedia is changing service providers’ business models, and the ways they manage and develop networks. The focus now is on how to move, manage and monetize content that is richer and more complex than ever before.

In response, as telecommunications companies ramp up newer, faster networks to handle all this traffic, Cisco Systems is a prime beneficiary. As the dominant player in network infrastructure, it has already seen profits begin to increase. The recent market downturn has only served to make the shares more attractive. As a bonus, Cisco's recent acquisitions have provided diversification and revenue streams not directly tied to its core business. Cisco's product offerings, always extensive, now run the gamut from equipment for the home to equipment for the Internet backbone, optical to wireless, hardware to software. If it has to do with digital communication, Cisco is there. The recently announced acquisition of WebEx adds yet another piece to the puzzle. One of Cisco's strengths thus far has been their ability to shrewdly choose acquisition targets and successfully integrate them.

As can be seen in the chart below, the stock has been strong in the last two quarters though it is now enduring some of the same downward pressure the rest of the market has seen. Usually I strictly employ the TradeRadar software to guide my trading but in this case, I am more interested in the market position and fundamentals of the company. Look for CSCO to recover its momentum as I believe the wind is now at their backs.

As a small cap selection, I would like to mention yesterday's IPO, BigBand Networks (BBND). They sit in the sweet spot of convergence around bundled video, voice and data; ie, TV, phone (VOIP) and Internet service. Their customer base includes some of the biggest cable and telecom companies and they are already profitable.

BigBand is an Israeli company based in Redwood, CA. The company’s solutions are designed to process, optimize, and deliver services such as broadband Internet, VoIP, digital broadcast television, HDTV, transport of high quality video, local advertising, VOD, interactive TV and IPTV through any network. Service providers use BigBand Networks’ platforms in efforts to cost-effectively expand revenue-generating offerings of rich content and advanced interactive services.

BigBand has won eight of the top 10 U.S. multi-system operators (MSOs) as customers. They provide a strong platform for video processing and distribution for telco IPTV networks. Outside the U.S., BigBand has made some notable headway in Europe and Latin America and especially in China.

Finally, as cable MSOs start to embrace switched IP video as an architecture that can compete with upcoming telco TV offerings, BigBand will be one of the few vendors in the space with the ability to sell into both sets of network architectures. Look for Cisco to absorb them soon.

1 comment:

KavJack said...

Can't buy BBND in the CNBC million $$ cometition. I got a message saying not valid.

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