Radvision (RVSN): Cisco goes from a friend to a foe

From Notable Calls

Radvision (NASDAQ: RVSN) is getting downgraded today after Cisco announced it will acquire Tandberg, a key competitor of RadVision.

- RBC Capital is downgrading RVSN to Underperform from Sector Perform and lowering their target to $7 from $10.

According to the firm, the move will pressure RVSN as the company loses its prime channel partner (~40% of sales) and in essence the former friend is becoming a foe. Furthermore, the move undermines Radvision's positioning and will marginalize its market share. Last, Tandberg deal puts to rest the view RadVision is a natural acquisition target for Cisco; if M&A was to occur as final attempt to salvage value, it would be at lower multiple off a lower revenue base in our opinion. They expect the deal to take a toll on numbers towards spring 2010 and they're directionally cutting FY10 estimates by ~25% Y/Y.

RBC expects sales to diminish in coming 9 months as the deal progresses as distributors and customers will likely wait for Tandberg-powered products and the focus of Cisco sales force will shift.

- Cantor Fitzgerald is lowering RVSN to a Sell from Hold with a $6.50 price target (prev. $11) noting Cisco is RADVISION's largest customer, accounting for about 34% of total revenue in FY:07, 35% of total revenue in FY:06, 27% of total revenue in FY:05 and 21% of total revenue in FY:04. Tandberg is directly competitive with RADVISION and thus they believe that the company's Cisco-based revenue stream is at risk in the intermediate to longer term as a result of the announced acquisition of Tandberg.

Firm notes they have not updated our model to account for this development nor have they had a chance to speak with the management of RADVISION. As such, their price target is simply based on tangible book of $6.52, which includes $6.05 in net cash. They will refine their thoughts regarding valuation once they gather additional details regarding the situation.

Notablecalls: RVSN will get slashed this morning. I don't think there is a trade left here (some lucky shorts got some shares in the $7.50 range) but still something to watch & learn from.

PS: Given the lack of premium (around ~10%) in the Tanberg deal and the fact a major player like Cisco is now entering the space, this can't be good for Polycom (NASDAQ:PLCM) either.

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