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Polycom (PLCM) Downgraded to 'Neutral' By UBS On Transition Uncertainty

 October 04, 2012 04:09 PM

(By Balachander) Polycom Inc. (NASDAQ:PLCM) shares were downgraded to "Neutral" from "Buy" by UBS Securities on uncertainty around market and business transition issues.

The brokerage said there is much flux in the video-conferencing market creating uncertainty as customers evaluate alternative offerings; customers spend more cautiously given the macro backdrop and with lower-cost alternatives being pursued; and customers face intense competition with some pricing pressure.

UBS wrote that PLCM is being challenged both by CSCO with its integrated offerings, and by smaller cloud-based players with VC and strategic partner support. Meanwhile, Huawei also appears to be entering the market, investing aggressively.

[Related -Citrix Systems, Inc. (NASDAQ:CTXS): A Look At Opportunities And Threats]

UBS reduced price target on the stock to $10 from $12.

The brokerage sees limited operating leverage for the time being as operating expenses have outgrown sales for a few quarters.

Given the uncertainties mentioned above and likely higher NT operating expenses associated with 4Q product launches, UBS lowered revenue and EPS estimates for FY12 and FY13 to $1.41 billion and $0.63 and $1.46 billion and $0.70, from $1.42 billion and $0.67 and $1.46 billion and $0.79 previously.

UBS believe cash on hand ($3 per share) and the precedence for M&A (Cisco/Tandberg, Logitech/Lifesize) could help provide a floor on the stock price.

[Related -Cisco Systems, Inc. (NASDAQ:CSCO): What Cisco May Add To Next-Gen UCS?]

The stock, which has been trading in a 52-week range of $7.45 to $22.74, dropped 2.77 percent to trade at $9.47 on Thursday.

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