The dry season continues for Juniper ( JNPR).

The company's roots once thrived in the rich loam of the ever-expanding new communications network business. But Juniper's business is now shriveling amid an industrywide spending slowdown and a potential delay in introducing a key product, the would-be Cisco ( CSCO)-killer router code-named Gibson, observers say.

And while the real news of slipping market share is bad enough, rumors of an earnings shortfall seem to be weighing the heaviest on the stock. Many of the rumors appear grounded in the abundantly chronicled hard times that have befallen the company's two biggest customers, Qwest and WorldCom. Juniper, whose shares dropped $2.09, or 16%, to $10.92 Thursday, declined to comment.

Sliding

As expected, Juniper lost 5 percentage points of its hold on the core router market to rival Cisco in the fourth quarter. Cisco told investors last week that it had gained share on its rivals in several markets. Thursday's report from the Dell'Oro Group, an independent research shop, confirmed those observations.

Juniper ended the year with 27% of all core router business, down from 32% in the third quarter, according to market researchers the Dell'Oro Group. Cisco's share increased to 69% from 65% in the same period. Core routers act as the Net's central mail sorters, helping to direct packets of electronic information to their addressed destinations.

Juniper's poor fourth-quarter performance in the core router market suggests that bad news is ahead for the Sunnyvale, Calif., gearmaker. The company isn't scheduled to report earnings until mid-April, and with less than half the quarter under its belt observers say it's probably too early to change any predictions. But that hasn't stopped Wall Street from lopping more than a quarter off the company's market value this week.

Double Whammy

Wall Street expects Juniper to earn 3 cents a share on $151 million in revenue. Tellingly, hitting those marks would entail an 88% decline in earnings and a 50% decline in revenues from a year ago.

Nearly every networking gearmaker has suffered sales declines that steep as the spending cut buzzsaw has worked its way through the industry. But as industry analyst Alex Henderson of Salomon Smith Barney points out, Juniper has both a spending-pattern shift and a missed product cycle working against it.

Phone companies are taking their drastically trimmed budgets into the market shopping for gear that expands their metro systems, the so-called edge of the network. Juniper's livelihood is at the core of the network, the central branches of long-distance routes. Juniper also hasn't been helped by the deteriorating financial health of Qwest and WorldCom, which have largely curtailed long-haul network upgrades.

Juniper has also been late to answer Cisco's challenge with a higher capacity router. The heavily anticipated introduction of the new super-router Gibson may not happen as expected this year, says Salomon's Henderson, who rates Juniper accumulate and Cisco a strong buy. Salomon has no underwriting ties to Juniper or Cisco.

"Losing share in a tough market is bad enough," the analyst says. "Being the No. 2 losing share in a two-player market makes it even harder. And as long as that goes on, the problem gets bigger."

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