Telecom-equipment spending may still be on a slide, but a shift in buying patterns toward Internet gear has benefited outfits like Cisco (CSCO) - Get Cisco Systems, Inc. Report and Juniper (JNPR) - Get Juniper Networks, Inc. (JNPR) Report.
Router sales to phone and Internet companies rose 20% last quarter to $464 million, up from $387 million in the second quarter. This surge was largely due to increased orders for Cisco's medium- and high-capacity routers.
The uptake helped Cisco add to its sizable lead in the big router segment, where spending was up 13% from the second quarter, according to the Dell'Oro Group. Routers are high-speed junction boxes that help direct Internet traffic.
losing share in sales of the so-called core routers in the second quarter to rival Juniper, Cisco's share increased to 65% from 59% in the third period. Nearly all those gains came at Juniper's expense. The Sunnyvale, Calif., tech shop saw its market share drop to 28% from 33% in the second quarter.
The good news hardly comes as a shock to Cisco investors. The San Jose communications-gear giant
posted solid fiscal first-quarter earnings last week and spoke of seeing the beginning of a fragile recovery in tech spending. Though their shares were lower Thursday -- Cisco fell 42 cents to $22.44 and Juniper slipped 8 cents to $18.52 -- both companies have enjoyed a sharp 2003 rally amid a rebound in tech-sector optimism.
Observers wildly overstated the degree to which networking customers were shifting to Internet gear during the turn-of-the-century market boom. But there now seems to be substantial movement in technology purchases, away from old-line phone switches toward Net equipment.
"This strong growth provides further evidence of the increased momentum behind demand for Internet protocol
IP gear even in the subdued carrier spending environment," CIBC World Markets analyst Steve Kamman wrote in a research note Thursday.
Analysts speculate that Cisco may be seeing increased interest in its supersized router, known inside the company as the huge-fast router or HFR. Cisco has been mum on the topic, but is expected to announce some customer contracts for the HFR in the coming months.