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Polycom in Neutral Zone

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We reaffirm our long-term Neutral recommendation on Polycom Inc. . The company’s financial results for the second quarter of 2013 outpaced the Zacks Consensus Estimate. We believe that the stock is currently fairly valued. Polycom carries a Zacks Rank #3 (Hold).

Why Kept at Neutral?

Industry leading unified collaborative solutions of Polycom has gained solid market traction. The company’s state-of-the-art unified communications technology integrates video conferencing and instant messaging while enabling data transfer from one communications platform to another. At present, Polycom remains the only pure play unified collaborative solutions provider. The company stands to gain as enterprises, governments, and educational institutions increasingly recognize the productivity-enhancing benefits of video conferencing.

Polycom has entered into a strategic agreement with AT&T Inc. (T - Free Report) to offer cloud-based video conferencing services to different organizations, which will be accretive to its long-term growth. The company is one of the most vital business partners of Microsoft Corp. (MSFT - Free Report) and provides hardware for Microsoft’s video chat and VoIP software, Lync, which can be used to replace traditional phone systems. Lync-compatible voice devices have become a major growth driver for Polycom.

Meanwhile, the uniform collaborative communications market is fiercely competitive, resulting in an aggressive pricing strategy. Cisco Systems Inc. (CSCO - Free Report) has become the main competitor of Polycom after it purchased Tandberg TV of Norway. Although sales in the North American region has stabilized a little, it is yet to reach its previous run rate. The company is suffering in this region mainly due to poor execution problems as regards marketing and sales.

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