The bigger the box, the better the news for
A surge in big-ticket network-equipment sales last quarter gave the upstart Sunnyvale, Calif., router maker another success story in a business that
once practically monopolized.
Sales of high-end, 10-gigabit routers -- the massive junction boxes that help networks distribute high-speed information traffic to addressed destinations -- jumped 10% in the second quarter over first-quarter levels, according to the Dell'Oro Group. And in a major win for Juniper, the company boosted its segment market share by 4 percentage points, trimming Cisco's still-formidable lead.
Investors tend to watch this particular high-stakes race with great interest because it represents a very lucrative market with exceptional growth potential. And with Cisco seeing intense competition in its low-end product market, the San Jose, Calif., networking king can ill-afford to lose ground in sales of big routers. On Monday, Juniper added 62 cents, or 4.6%, to $14.23, while Cisco rose 47 cents, or 2.6%, to $18.26.
Cisco continues to dominate this two-player race, but its lead has slimmed considerably since Juniper jumped into the market in the late 1990s. As of the end of July, Juniper held 34% of the market, against 59% for Cisco. Cisco has seen its market share fall from over 90% several years back as customers continue to warm to Juniper's big boxes.
"Juniper drove the growth in the quarter because of where they are in their product cycle," said Dell'Oro's Shin Umeda.
Juniper has made steady progress over the years, but it jump-started the latest round of gains with last year's rollout of the T640 router, more affectionately known as Gibson. That product managed to trump Cisco at its own game by offering denser routing capacity at some five times the speeds of current network traffic levels. Realizing the limited market for that sort of high-end machinery, Juniper soon followed with the introduction of the T320 router, known as the mini-Gibson.
Umeda says it isn't uncommon for a hot product to create a fluctuation in the market-share numbers, and notes an absence of top-tier buyers in the market. But the research analyst says "the bigger buyers will start making their big buying decisions in 2004 and 2005."
Juniper has long been an investor favorite, benefiting as it does from its status as the No. 2 player to Cisco. With about $160 million in quarterly revenue, Juniper is seen as an attractive option for investors looking for an alternative to Cisco, which remains highly profitable and cash-rich but which has stopped producing the growth investors crave. Equipment contracts of $20 million or so appear insignificant to a company like Cisco, which reports more than $4.5 billion in quarterly revenue. But they can make the difference for outfits like Juniper.
Still, Juniper is not necessarily a cheap alternative. Juniper trades at more than 100 times this year's estimated earnings, while Cisco has a 2003 price-to-earnings ratio of 35.
In any case, the latest quarter's 10% sequential rise in big-router sales is likely to be good for both shops. Total revenue in the fast-growing segment jumped to $170 million in the second quarter. Dell'Oro's Umeda expects the third quarter to be flat and the fourth quarter to top about $180 million in sales.