Oct. 12--PLEASANTON -- Polycom Inc. faces some tough challenges -- yet can also harvest plenty of opportunities -- from this month's decision by Cisco Systems Inc. to muscle onto Polycom's video conferencing turf.

Despite a recession, Polycom has managed to parlay its video conferencing and telepresence -- present from a distance -- technology into sales and profits that have sparkled. The company's products appeal to companies that must scrutinize expenses amid the steep downturn for the economy.

"Everybody is trying to cut travel costs" said Robert Hagerty, Polycom's chairman and chief executive officer. "People are trying to become more productive in a difficult economy."

Pleasanton-based Polycom has transformed that quest for efficiency into robust sales. In 1996, Polycom produced revenues of $37 million. A decade ago, in 1999, revenues totaled $200 million. Now, Polycom's sales are running at around $1 billion, a pace it's maintained for six straight quarters.

"We have ramped up pretty well," Hagerty said. "This is a challenging recession, but we have gotten through several recessions. Now a lot of factors are coming together that are really incredible."

Some big rivals have begun to venture into Polycom's territory, enticed by the potential profits in the video conferencing arena.

San Jose-based Cisco plans a $2.97 billion purchase of Norway-based Tandberg, a Polycom rival with $833 million in yearly

sales.

Cisco's interest, in turn, has prompted some on Wall Street to speculate that Polycom could become takeover quarry for big competitors of Cisco, such as Palo Alto-based Hewlett Packard Co.

No question, speculation over Polycom has caused its shares to surge. Polycom is up 6.2 percent since Oct. 1, when Cisco disclosed plans to buy Tandberg.

Polycom's stock, though, has sizzled since well before that event. Since a recent trough in the price of the shares on March 3, when the stock closed at $13.10, Polycom's shares have soared 109 percent, more than double. Polycom closed Monday at $27.15, 1.2 percent below the 52-week high of $27.48 on Oct.

At first glance, the challenges seem formidable. With $994 million in revenue and $67 million in profits during the 12 months that ended in June, Polycom is a fraction of the size of Cisco, a networking company that operates many more businesses than Polycom.

Over the same one-year period, Cisco produced $36.12 billion in revenue and $6.13 billion in profits.

Still, Polycom is betting it can steal a march from Cisco while it attempts to absorb Tandberg.