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Cisco feels the competitive heat

The networking giant expects that gross margins will continue to decrease, due to increased competition and a booming market for lower-end products.

Cisco said it expects that gross margins will continue to decrease, due to increased competition and a booming market for lower-end products, according to a regulatory filing.

The networking giant's remarks were contained in a quarterly "10Q" filing with the Securities and Exchange Commission.

"The company expects that gross margins will continue to decrease in the future, because it believes that the market for lower-margin remote access and switching products for small and medium-sized businesses will continue to increase at a faster rate than the market for the company's higher-end products," the filing said.

Cisco has voiced these same concerns in prior quarterly filings. Additionally, Cisco said it faces increased competition from "large telecommunications equipment suppliers and well-funded startup companies."

The booming market for lower-end products and increased competition from telco equipment giants is part of an industry-wide trend, partly brought on by the convergence of voice, video, and data. Analysts have said this could put pressure on the stocks of high-flying networking companies.

Cisco also said "for the near future" that research-and-development expenses are expected to increase at a greater rate than the sales growth rate as the company invests in technologies for new market opportunities.

The company said it is trying to counter the pressure on gross margins by controlling royalty costs and improving manufacturing efficiencies, among other measures.

The company said last fall that it did not feel pressure to offer discounts on its products, some of which boast whopping margins. Cisco's current quarter is classically its weakest, however.