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We reiterate our long-term Neutral recommendation on Polycom Inc. (PLCM - Analyst Report) following mixed financial results for the fourth quarter of 2012. While earnings per share fell short of the Zacks Consensus Estimate, revenue was slightly ahead of the same.

Why Remains Neutral?

Polycom operates in the unified collaborative solutions market, especially the corporate Videoconferencing segment, which is becoming immensely competitive day by day. Additionally, the company is in the midst of its transition from hardware centric to cloud- and software-based business models, which is the main reason behind the sales execution problem.

However, Polycom has made several product enhancements for its popular RealPresence platform and has entered into a strategic agreement with AT&T Inc. (T - Analyst Report), to offer cloud-based video conferencing services to different organizations. Meanwhile, the stock price of Polycom plunged 55% in the last year and is currently trading at the low-end of its 52-week price range. Both Polycom and AT&T currently have a Zacks Rank #3 (Hold).

Risk – Reward Virtually Balanced

Unified collaboration solutions market is currently booming as enterprises, governments, and educational institutions increasingly recognize the productivity-enhancing benefits of video conferencing. The company’s rivals like Cisco acquired Tandberg TV of Norway while Logitech purchased high definition video conferencing manufacturer LifeSize Communications Inc. Stiff competition in the unified collaborative solutions market has led to cut throat pricing strategy among rivals thereby affecting both the top and the bottom line of the segment.

According to research firm IDC, unified communication and collaboration market is expected to reach $11.7 billion in 2016 in the EMEA (Europe, Middle East and Africa), which provides a significant growth opportunity for the company in the international market. Polycom has made a couple of acquisitions in the Videoconferencing segment, which will allow Polycom to differentiate its products from those of its rivals.

Recently, the company partnered IBM (IBM - Analyst Report) to jointly develop unified communication, managed video and cloud-based services, which we believe will be accretive to the company’s top line.

Other Stocks to Consider

Other stocks to consider in the Unified Collaboration market are Cisco Systems Inc. (CSCO - Analyst Report) and Microsoft Corporation (MSFT - Analyst Report). Cisco currently has a Zacks Rank #2 (Buy), whereas Microsoft carries a Zack Rank #3 (Hold).

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