Next Year in Networking: Cisco, Juniper and Red Ink

The good news for 2003, networking industry investors and analysts agree, is that Internet router makers Cisco (CSCO Quote) and Juniper (JNPR Quote) should prosper.

The bad news is that their many competitors will once again be left behind, possibly damagingly so. Perhaps worst of all, investors shouldn't hold their breath for any bailout mergers at big money-losing gear shops.

So say the respondents to this year's informal poll of tech watchers. TheStreet.com surveyed a handpicked group of industry observers on whether the top network equipment suppliers would do better, the same or worse next year. The results drew an unforgivingly sharp line across the industry, with data outfits on the winning side and conventional telecom equipment makers and optical gearmakers on the other.

More good news at Cisco comes as no surprise, and Juniper has long been seen as a strong runner-up in this highly competitive business. What was unexpected was that the handicappers came up with a long list of clear losers in the once-hot optical networking arena, including Ciena (CIEN Quote), Sycamore (SCMR Quote), Corning (GLW Quote) and JDS Uniphase (JDSU Quote).

While the divide has a technological angle -- with the Internet protocol gearmakers Cisco and Juniper on top -- the reasoning actually ran more along market categories. Our trendspotters picked corporate spending to be the first segment to pick up. Hence Cisco's and to a lesser degree Juniper's favorable prospects.

With phone companies hoarding cash as their businesses slide, the demand for new telecom gear is likely to fall further before it starts to pick up again.

But while Cisco stands to reap the most benefit from a Net gear upgrade cycle, skeptics point out that the data king already dominates the market -- leaving it little room to grow and plenty of opportunity for low-cost challengers to chip away.

Handicapping the Handicapped Telecom gear watchers sound off on 2003 prospects for a sickly crowd
Company	Recent Price	Comment
Better
Cisco	12.76	Everyone loves a winner. And when the IT spending music returns, Cisco is looking like the disco of choice. But networking's a tired beat, and Cisco has yet to show investors that it has found the groove in its new growth markets.
Juniper	7.30	Building a faster Internet at narrowband speeds is the right recipe for a belt-tightening era. With big customer and Net leader WorldCom returning to action and corporate spending potentially rebounding, the gear should start moving again.
Same
Lucent	1.23	Proves you can cut all you want and a shrinking market is still a shrinking market. A 6-year-old company that has spent most of that time in a tailspin is hard to get excited about.
Nortel	1.66	Wireless business wags this wounded dog. Reorganization will be put to the test as demand continues to flag on almost all fronts.
Tellabs	6.96	Pushing the sprockets at the heart of the Bells' basic phone business favors this gear maker in cash-conserving times. But there are risks if the biz model is as rusty as the old phone gear.
Worse
Extreme	3.06	Casualty of the price wars. Or as one respondent put it: "Extreme is to networking what DeLorean was to automobiles."
JDSU	2.57	Demand for lasers and other components of fiber optic networks isn't returning anytime soon. It promises to be a long, painful wait.
Ciena	5.34	With quarterly sales running at a third of its break-even target, Ciena is gambling that it can outlast its customers' spending freeze.
Corning	3.27	The fiber glut that nearly killed telecom hasn't abated. The buried beast of optical cable still has Corning on the run. Sure, demand for new fiber looks strong -- in the next millennium.
Sycamore	2.88	Given up for dead in last year's poll, this optical equipment outfit hasn't bettered its prospects one bit. Bold tech vision is a hard sell to myopic telecom bean counters.
Source: Detox.

"The pool's not getting larger and this fish is getting pretty big," said one analyst.