Updated from 12:46 p.m. EST
investors got some good news to leaven an up-and-down week.
A networking industry consultant reported Thursday that the company gained ground on
last quarter in the fast-growing high-capacity router business. Meanwhile, Cisco suffered a fourth-quarter setback as the rollout of a widely awaited new product was delayed into the new year.
The consultant, Dell'Oro Group of Redwood City, Calif., said sales of high-end routers -- boxes that telcos use to direct Internet traffic -- accelerated in the second half of the year and grew 22% in 2003. An analyst at Dell'Oro expects the telecom-spending surge to continue through 2004.
Shin Umeda, principal analyst at Dell'Oro, predicts high-capacity router sales will grow in the high-teens-to-low-20% range for the year. He sees strong momentum, especially at Juniper, as phone companies "increase their IP capabilities."
"Even with reduced capital budgets, service providers are clearly showing that they are committed to expanding their Internet protocol networks to ensure future success," Umeda said. "On the other hand, businesses are waiting for sustained economic improvements before resuming their purchases of routers."
News of any rise in spending is good for companies such as Juniper and Cisco, which peddle the equipment that makes networks hum. But what was music to Juniper investors' ears was that 2003's growth was concentrated at the top end of the market, in the high-end routers that big telcos use. Juniper focuses on selling those boxes, while Cisco's customers are more apt to be big businesses running internal computer networks.
Umeda also noted that shipping of Cisco's 12800 router line was delayed till January, meaning the company didn't have the benefit of any of those sales in the latest quarter. Accordingly, Cisco's high-capacity router market share slipped to 62% from 66% in the third quarter, while Juniper's rose to 31% from 28% in the previous quarter.
The Dell'Oro report comes after an eventful few days for Juniper, a highflying Sunnyvale, Calif., telecom gear shop. On Monday, Juniper shocked investors by rolling out a $3.4 billion bid for network security outfit
in a deal that many observers took as a shot across Cisco's bow. Juniper shares slid 10% as Wall Street worried about the company's pricey push into a new and highly competitive niche.
On Thursday, shares in Juniper advanced 24 cents, to $27.19, while Cisco slipped a penny, to $24.23.
Dell'Oro's numbers show that Cisco, the No. 1 router vendor worldwide, suffered a 2% decline in 2003 router sales as corporate information technology departments continued to play their spending cards close to the vest. Juniper, the No. 2 vendor, posted a 9% gain.
Worldwide sales of routers rose 3% last year, according to Thursday's report by Dell'Oro Group. The 2003 gain brought global router sales to $6.3 billion, marking the sector's first growth since the tech industry's spending slump began in earnest back in 2001.
Telecom gear stocks in general, and Juniper in particular, have enjoyed a sharp upsurge over the last year. Juniper shares have risen 45% in 2004 alone as investors have started betting that the industry's big spenders, such as
, will spend heavily in coming years to update their networks for new technologies such as voice over Internet protocol, or VoIP.
That said, some analysts worry that we've been here before. Many 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 and toward Net equipment.