Goldman Sachs Takeaways from Cisco Systems Management Meeting

Goldman Sachs has published a research report on Cisco Systems CSCO after meeting with CEO John Chambers. In the report, Goldman Sachs wrote, "We reiterate our Conviction Buy on Cisco, as we believe there are two areas where the market is underestimating the company's long-term earnings potential and applying an unwarranted discount to the multiple. (1) In the area of software-defined networking (SDN), we believe Cisco will be able to achieve significant differentiation through its integration of ASICs, hardware, and software. We believe its ASICs in particular will increase in importance, as demonstrated by Cisco's introduction of a 10Gb switch last week based on its own ASIC that has significantly better latency than Arista's, which had previously led using merchant silicon. (2) We believe it will become increasingly apparent in coming months that the set-top box (STB) market is likely to experience secular growth rather than secular decline, as STBs evolve to home gateways that integrate with a carrier's cloud to stream video to various end devices around the home. In our view, Cisco is uniquely well positioned to benefit from that secular shift, both in STBs and infrastructure, given its main competitor – Motorola Mobility – is likely less focused on that post its acquisition by Google. Separately, Mr. Chambers sounded very confident on the competitive landscape and Cisco's margin trajectory, and continues to expect dividend increases." Goldman Sachs maintained its Buy rating and $24 price target on Cisco Systems, which closed Thursday at $18.80.