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We reaffirm our Neutral recommendation on Polycom Inc. (PLCM - Analyst Report). The company’s first-quarter 2013 financial results beat the Zacks Consensus Estimate.

Why Kept at Neutral?

The worldwide unified collaborative solutions market, especially the corporate video conferencing segment, is becoming competitive by the day. In the last quarter, the company benefited from its collaboration with Microsoft Corp. (MSFT - Analyst Report) for the latter’s Lync-based video conferencing solution.

Polycom currently is in the midst of its transition from a hardware-centric to a cloud and software-centric business model. Meanwhile, Polycom has made several product enhancements for its popular RealPresence platform. Polycom has also entered into a strategic agreement with AT&T Inc. (T - Analyst Report) to offer cloud-based video conferencing services to different organizations that will be accretive to its long-term growth.

Polycom is expected to raise its total addressable market opportunity to more than $12 billion in 2015 compared with a little over $6.5 billion in 2011. Management has decided to strengthen the company’s foothold in the unified collaborating cloud computing, collaboration software, and mobile video markets.

Nevertheless, 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 global economy is currently far below its pre-recession level. This may lead to longer approval cycles for new projects and uncertainties regarding actual program implementations at customer sites. We remain concerned regarding the future business infrastructure spending by enterprises in the European regions.

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