Alcatel Gains Squeeze Juniper

Juniper's (JNPR) fan base keeps shrinking as growth opportunities seem to slip away.

Banc of America analyst Tim Long downgraded the stock Wednesday to neutral from buy. Long says the networker's failure to gain market share in its routing business and its "choppy" sales of network security products could make for weaker-than-expected sales this year.

Though the Sunnyvale, Calif., Internet equipment supplier has long been a Wall Street favorite for its strong No. 2 position in router sales behind Cisco (CSCO), 2006 has been a tough year. The stock has dropped 14% amid management turmoil and increasing success by rival Alcatel (ALA) on Juniper's turf.

Juniper appears particularly vulnerable in the emerging Internet video market, says Long. The company's routers -- boxes that direct Internet traffic -- are "weak" in gigabit Ethernet capacity, he says. Meanwhile, Juniper's "lack of video expertise" will make it hard to offer gear supporting the "triple play" -- phone, Net and TV -- that phone and cable companies are shopping for.

At the same time, rival Alcatel has been racking up new customers and bigger sales in this edge routing market, where new generation boxes handle varying types of network traffic. "We believe the success of Alcatel highlights the importance of offering a complete solution," Long indicates.

The gains of rivals became glaringly apparent back in January, when Juniper guided its profit outlook lower for the first and second quarters. The warning took Juniper's shares down 19% in a single day, and they have since recovered less than half that decline.

Particularly galling to investors was that Juniper in January guided toward its first sequential sales decline in four years. Calling for a 1% revenue decline in the current quarter from fourth-quarter levels, Juniper effectively called the end to the runaway success of the company's Internet gear.

The weak comments came just two weeks after three executives took their leave of Juniper. The company's worldwide sales chief, Jim Dolce, stepped down along with infrastructure head Carol Mills and applications leader Jef Graham.

Juniper shares fell 29 cents to $19.07 in late-morning trading Wednesday.

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