* Q4 adj EPS 42 cents beats estimates of 40 cents
* Q4 revenue misses estimates
* Sees Q1 sales lower than Q4 on delayed budget decisions
* Sees Q1 gross margin falling sequentially
* Q4 Video services segment sales up (Recasts, adds outlook, comments from conference call)
Jan 21 (Reuters) - Video conferencing products maker Polycom Inc PLCM.O posted a quarterly profit that beat market estimates on strong growth at its video services segment, but warned of a sequential drop in revenue as firms delayed budget decisions.
Polycom and Norway's Tandberg TAA.OL dominate the video conferencing market which is expected to grow as companies looking to cut travel costs in a bleak economy choose video conferencing as a cheaper alternative to face-to-face meetings.
Polycom's fourth-quarter revenue from its video services segment rose 6.7 percent to $175.9 million, while that from its voice communications business fell 11.5 percent.
Fourth-quarter net income increased to $25.7 million, or 30 cents a share, from $22.8 million, or 25 cents a share, a year earlier. Revenue was flat at $263 million.
Polycom's telepresence services grew sequentially and year-over-year, it said. Telepresence is a market that could reach $1.5 billion in annual revenue by 2010, market researcher Gartner has forecast.
Polycom expects first-quarter revenue to fall 9 percent to 13 percent sequentially to a range of $228.8 million to $239.3 million.
Analysts were expecting revenue of $247.2 million, according to Reuters Estimates
The company expects gross margin to fall 1 point from fourth-quarter margin of 60 percent, excluding items.
Shares of the company closed at $14.24 Wednesday on Nasdaq.
For the alerts, double-click [ID:nWNAB1950] [nWNAB2010] (Reporting by S. John Tilak in Bangalore; Editing by Deepak Kannan and Savio D'Souza)