Cisco Systems, Inc. (Nasdaq: CSCO) stock bounced back on Monday, gaining 2 percent in morning trading after a 4 percent sell-off on Friday.
Friday’s drop came after reports that Amazon.com ( AMZN) may be entering the data center network switch business, but analysts say that most of Cisco’s market share is likely safe from Amazon for now.
Networking equipment is Cisco’s core business, and Amazon already has plenty of experience managing its own AWS cloud data centers. Considering the success Amazon has had in disrupting countless other businesses, it’s understandable for Cisco investors to be concerned.
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However, analysts say it may be difficult for Amazon to grab a significant portion of Cisco’s switch business. Amazon’s expertise is mostly limited to AWS, whereas Cisco has a host of support features for all the leading cloud services.
Bank of America analyst Tal Liani says Amazon’s white box stitches will likely be focused primarily on allowing customers to switch back and forth from AWS public cloud to private data centers.
Liani says there are three primary reasons Cisco investors shouldn’t be worried about Amazon switches. First, many companies need more architecture support than a bare-bones white box solution. Second, Cisco has a proven track record of providing advanced technical support for its customers. Third, relatively few companies exclusively use AWS, and Cisco’s solutions flow seamlessly with both the Alphabet ( GOOG, GOOGL) Google Cloud and Microsoft Corp. ( MSFT) Azure.
In fact, Liani says Amazon and Facebook ( FB) together account for about 80 percent of the total white box switch market, and the majority of the rest of the business world needs something more advanced.
“We view Amazon’s potential solution as a switch designed to work with AWS, which represents an opportunity for Amazon, yet not something that would significantly threaten existing players,” Liani says.
“Most private data center investments have legacy network components and we believe the software complexity required to interface with such architectures may not be in Amazon’s wheelhouse.”
Liani says Facebook’s “Wedge” white box has been years in the making and has still shown limited success in disrupting the legacy switch business.
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Liani says investors buying the dip in CSCO stock on Monday are making the right move. He says Cisco’s margins are solid and the stock provides both a 3.1 percent dividend yield and stable long-term growth trajectory for investors.
Bank of America has a “buy” rating and $53 price target for CSCO stock.
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Cisco Systems, Inc. (CSCO) Switch Business Is Safe From Amazon originally appeared on usnews.com
