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We reaffirm our Neutral recommendation on Polycom Inc. (PLCM - Analyst Report) based on its current valuation, which plummeted 55% in the last year. The company’s second quarter of 2012 financial results missed the Zacks Consensus Estimates.  The unified collaborative solutions market is becoming immensely competitive day by day and Polycom is yet to fix its sales execution problems in the North American region.

The global macro economy is growing at a very slow pace, resulting in uneven tech spending. Further, Polycom currently is in the midst of its transition from hardware-centric to cloud- and software-centric business model, which is the main reason behind its sales execution problems. Nevertheless,we believe Polycom’s decision to sale its enterprise handset business will be fruitful in the long term as the company is slowly disinvesting its non-core hardware businesses. In our view, Polycom is currently fairly valued.

At present, a major concern for Polycom is its lukewarm performance in the most important North American regions. The problem seems to be double-edged (1) growing competitive pressure (2) precipitous macro-economic fluctuations, resulting in volatile tech spending.

The uniform collaborative communications market is fiercely competitive, resulting in a cut-throat pricing strategy. Cisco Systems Inc. (CSCO - Analyst Report) became the main competitor of Polycom after it purchased Tandberg TV of Norway. Tandberg is the undisputed global leader in the uniform collaborative communications market with around 40% market share. Cisco itself is a developer of high-end video conferencing solutions, mainly comprising custom-designed digital boardrooms for executives and boards to hold global meetings. The merged entity will definitely be a much bigger player in the industry.

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