Juniper Gaining on Cisco as Router Market Shrinks

A slowdown in sales of Internet gear hasn't slowed Cisco's (CSCO Quote) retreat in the core networking business.

Though it remains far and away the leader in sales of so-called core routers, the computers that direct traffic on the Internet, Cisco saw its share of the market fall to 59% in the first quarter from 65% in the fourth quarter. Rival Juniper (JNPR Quote) continued to benefit at Cisco's expense, boosting its share to 38% from 34% in the prior quarter. And tiny Avici (AVCI Quote) gained a point to capture 2% of the market, according to market researcher Dell'Oro Group.

Dell'Oro says total core router sales for the first quarter fell 10%, to $753 million from $835 million in the fourth quarter. Companies like Cisco have been hard-hit in recent quarters by the economic slowdown and an industrywide pullback in equipment spending as emerging and established telecom network operators alike seek to conserve cash.

Core routers are like superfast mail sorters that send packets of Internet traffic along various pathways to their addressed locations. Juniper was the first to introduce a 10-gigabit router, so called because it can handle 10 billion bits of information per second. Cisco introduced its 10-gigabit router in January, which may prove to stem some of the loss of business to Juniper.

Hard-Core Juniper making inroads in router market

Source: Dell'Oro

Juniper has taken about 5 points of Cisco's router share each quarter for the past year. Cisco has maintained that less than 60% of the core router market would be unacceptable and that 70% is a desired goal. Core router sales typically account for about 7% of Cisco's revenue.

Many investors believe there is an intense price war raging between Juniper and Cisco as Cisco seeks to reclaim its dominance. CEO John Chambers conceded last week during an earnings conference call with analysts that significant discounting contributed to a narrowing of the company's gross margins, but he said a new sales staff was in the process of being trained to use other methods besides price-to-win contracts.