Cisco Stock Forecast: The Anti-Huawei Witch Hunt Is A Global Tailwind For Cisco
The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.
Summary:
- The anti-Huawei position of the CIA and the United States is a tailwind for Cisco.
- The elimination of low-pricing specialist Huawei means Cisco can sell more of its network routers & switches.
- Cisco and Huawei are also fierce global rivals in server computers. The United States and its allies can also disrupt Huawei’s server sales.
- Cisco’s Artificial Intelligence and Deep Learning business can also benefit if Huawei doesn’t win any non-China customers.
- I Know First has a slightly bullish algorithmic 12-month forecast for CSCO. Monthly technical indicators and moving averages trends also rate CSCO as a buy.
Huawei is the primary culprit why Cisco (CSCO) has a stagnating/declining network hardware business. Huawei’s lower-cost routers and switches is disrupting Cisco’s global sales. It is therefore a welcome development that the United States government, Federal Bureau of Investigation, and the Central Intelligence Agency are very noisy about their anti-Huawei crusade. Going forward, Cisco has better international sales opportunity when the allies of the United States and Western corporations stops buying Huawei products.
Going forward, the elimination of Huawei as an international rival means Cisco can keep its 50% market share lead in the $6.7 billion/quarter Ethernet switch industry. Cisco will only have to largely compete for international customers against Hewlett Packard Enterprise (HPE) and Arista Networks (ANET).
Ethernet cards, routers, and network switchers are Cisco’s biggest revenue generators. Anything that will help Cisco sell more of these flagship products is considered as an important tailwind. The long-term investment quality of CSCO is now a lot better now that the United States and its allies are very anti-Huawei.
We cannot deny that the United States, Canada, and the United Kingdom has allies in Asia, Africa, Middle East, and Latin America. We can guesstimate that the anti-Huawei crusade can spread up to more than 100 countries. Cisco can replace the $1 billion worth of Huawei products that Canadian telecom companies are removing. United Kingdom’s telco BT Plc is also removing Huawei products it bought and installed. New Zealand and Australia are also removing and banning Huawei telco products. Japan has banned Huawei and ZTE too.
Cisco Can And Should Match The Affordable Pricing of Huawei
Cisco is the largest American supplier of networking hardware products. It is therefore the largest beneficiary of a global-wide ban on Huawei. Cisco will easily crush much smaller rivals like Arista Networks and Juniper (JNPR) by offering anti-Huawei clients the most affordable pricing and financing plans.
As of January 31, 2018, Cisco is hoarding $40.38 billion in cash and short-term investments. Its quarterly free cash flow is $3.54 billion. If Cisco is willing to sacrifice its hardware margins, it can easily replace Huawei and ZTE as the world’s go-to supplier of affordable network routers, switches, and Ethernet cards.
Cisco is clearly stagnating company because its net margin is very high (25.03%) considering it’s a hardware products-centric company. This high margin approach actually propelled its rivals like Huawei, ZTE, and Arista to flourish over the last decade.
(Source: Seeking Alpha)
My takeaway is that Cisco can double its advantage from the current anti-Huawei witch hunt by initiating a price war against its American rivals, Arista and Juniper. If it does this, I will go long CSCO.
Cisco Needs Less Competition To Grow
For the past five years, Cisco’s annual revenue growth was largely flat. It is therefore a great long-term opportunity for Cisco if the anti-Huawei crusade persist. Networking hardware products account for more than 74% of Cisco’s annual revenue of $49.1 billion. Without the competition from Huawei, Cisco’s annual revenue growth going forward can hit 8 to 10%.
My guesstimate is that Cisco can rake in up to $5 billion in additional annual revenue from anti-Huawei countries. It is not only routers and switches that Cisco will see future stronger sales. Huawei and Cisco are also fierce global rivals in computer servers. Cisco and Huawei are both ranked no.5 in global server shipments by IDC.
Based on the chart above, Cisco has a $4 billion/year computer server business that can also benefit from the anti-Huawei crusade of the U.S. and its allies. If America and its allies cannot trust Huawei’s network routers and switchers, it also cannot trust Huawei’s server computers and data center accelerators.
Conclusion
The anti-Huawei crusade of the U.S. and its allies is a strong tailwind for Cisco. The discrimination of Huawei in networking hardware, server computers, and cloud computing services can help Cisco achieve 8% to 10% topline growth. Cisco now only needs to lower its margins so that America-friendly countries will be more enthusiastic in replacing and banning Huawei hardware products.
I reiterate that Cisco is worth adding to your long-term portfolio. It has obvious long-term tailwind from the emerging anti-Huawei sentiment. Further, I Know First has a positive outlook for the 12-month market trend performance of CSCO.
How to interpret this diagram.
The monthly technical indicators and moving averages are also signaling CSCO as a buy. If the anti-Huawei crusade of the United States and its allies persists for the next two to five years, my fearless forecast is that CSCO can easily hit $65.
(Source: Investing.com)
Past I Know First Success with CSCO Stock Forecast
I Know First has been bullish on CSCO shares in past forecasts. On July 13, 2017, the I Know First algorithm issued a bullish 1 year forecast for CSCO with a signal of 72.69 and a predictability of 0.44, the algorithm successfully forecasted the movement of the CSCO share. After a year, CSCO shares rose by 34.08% in line with the I Know First algorithm’s forecast. See chart below.
This bullish forecast for CSCO was sent to the current I Know First subscribers on July 13, 2017.
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Please note-for trading decisions use the most recent forecast.