The future of hybrid working is positive for Cisco and Dell; negative for Xerox, REIT

With the advent of the pandemic, hybrid working has become more pronounced, and according to Morgan Stanley’s AlphaWise survey, hybrid working is here to stay.

The survey, now in its third year, suggested that current levels of hybrid labor exploitation are largely stable, both that require less office real estate and more technology investments.

According to Morgan Stanley analysts, the survey revealed three interesting things – 1) that despite the macro deterioration, hybrid work indications remained largely the same (with some increased indications for 3 days in the office); 2) Real estate footprint reduction expectations are lower than last year, with increased anticipation of having to pay more per square foot, but still a clear headwind 3) and compared to the CIO survey of the company, fewer respondents consider their organization to have exceeded peak spending on office connectivity, suggesting a longer investment period.

The company sees this as an advantage for Cisco Systems (NASDAQ:CSCO), Hewlett Packard Enterprise (HPE), Dell Technologies (Dell); Neutral for HP Inc (HPQ), Logitech International (LOGI), Juniper Networks (JNPR), Zoom Video Communications (NASDAQ:ZM); and negative for Xerox (XRX) Vornado Real Estate Trust (WNV) and Office Property Income Trust (OPI).

The survey suggests that around 50% of peak investment in desktop infrastructure will occur after 2023 – an additional positive for the growth windows of networks, PCs, software and video conferencing hardware. WiFi, video, PCs, phones are still the main areas of investment, a benefit for Dell, HP Inc., Logitech (hardware) and support for Cisco, Hewlett Packard and Juniper.

Demand for office space is expected to decrease by -10% over the next three years as work from home and use of office space in hotels continues to grow. Meanwhile, occupancy headwinds and high financial leverage could keep REITs under pressure, analysts added.

The firm noted that it was cutting OPI price target by -55%, Hudson Pacific Properties (PPH) price target -33%, Vornado Realty Trust (WNV) price target -8%, and Highwoods Properties (HIW) of 4 %. Meanwhile, UW reiterated its rating on Vornado and OPI.

Networking:

The survey has been progressively positive on the trajectory of campus spending and investment in office networks.

The company added that although it is cautious about networking, due to the difficulty of backlog builds, the results have been more encouraging than expected – a plus for Cisco, Hewlett Packard and Juniper.

Additionally, the firm said that at a stock level, it thinks the market is too negative on Zoom’s positioning in longer-term video conferencing due to the growing use of Microsoft Teams.

Material:

The survey indicates that PCs are the biggest beneficiary of hybrid work technology spending, with slightly positive/mixed results for video conferencing products, but negative for printing. The firm sees positive results for Dell, mixed for HP Inc. and Logitech, but negative for Xerox (XRX).

Companies:

Cisco: Similar to Cisco’s recent earnings call, the company continues to see higher investment from customers in a hybrid workplace scenario. The survey confirmed Cisco’s view, with 53% of organizations seeing peak investment through 2023. With the most diverse portfolio of any internal investment, Cisco should continue to benefit from internal investment, added the society.

Hewlett-Packard: Hewlett Packard should benefit from a longer duration of investment in offices. Additionally, with the company adding additional SD-WAN security products to its portfolio, these could benefit from the investment.

Juniper: Analysts noted that with growing share of the campus switching market, as well as the scale of investment in office connectivity, this should benefit Juniper’s enterprise business. In times of macroeconomic weakness, people are less likely to switch providers, with Juniper being the challenger in the market, according to the company.

Zoom: The continued reliance on video conferencing to aid the future workplace remains a positive tailwind for Zoom, analysts say.

Suggested data – 1) employers are investing in video conferencing tools to help drive greater use of the product in the office, a tailwind for Zoom Rooms; 2) strategic direction in the use of video conferencing likely supports the budget of multiple vendors, where Zoom is generally considered to deliver superior performance across all ecosystems.

Analysts said they would like Zoom to continue expanding its portfolio to become more positive on the name.