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Juniper Party Nudges Sector Toward Shakeout

Investors warn that all these stocks can't share in the spoils of a massive market spike.

The

Juniper

(JNPR) - Get Juniper Networks, Inc. Report

party is going strong, but the fun can't last for many of its communications-equipment rivals.

Shares of the Sunnyvale, Calif., Internet gearmaker shot up 25% after the company

beat even the most ambitious fourth-quarter sales targets. Friday's surge continued a remarkable New Year run by stocks in a long-ignored area of the market. Juniper shares are now up 50% for the year, as are those of many peers.

But if investors understand why signs of a spending recovery have rejuvenated these stocks, some emphasize that the spoils won't be shared equally across the group. Winners and losers will soon emerge, with outfits like Juniper and

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

cashing in on rising demand for more-efficient gear -- likely at the expense of old-line suppliers that have risen just as much.

"It's like mountain climbing -- everyone leaves the base level and gets to the first camp OK," says money manager Doug Ashton of Pythar Capital Advisors. "But after that they start falling off because they can't keep up."

Juniper's news helped throw even more momentum behind the broader gearmaking group, a push that started two weeks ago. Internet-hardware makers like

Avici

(AVCI)

and Cisco rose 14% and 4% respectively Friday. Other players like next-generation equipment shop

Ciena

TheStreet Recommends

(CIEN) - Get Ciena Corporation Report

jumped 10%.

Even old-line suppliers like

Lucent

(LU)

and

Nortel

(NT)

-- companies that in this view are less likely to benefit from the industry's do-more-with-less mindset -- were each up 5%, adding to their mind-boggling gains of 2004.

Breaking Away
Juniper surges

The likely divide between weak and strong networking companies will be along product lines, says analysts and investors. As Juniper's results indicated Thursday, phone companies are shifting more spending toward Internet-type gear and less toward conventional telecom systems. All the major phone companies have said as much in recent months as they

announce big voice-over-Internet protocol, or VoIP, plans.

That trend comes as little surprise to CIBC World Markets analyst Steve Kamman, who has been a big proponent of the IP move.

"This rising tide won't lift all boats," says Kamman. "What we are seeing is very focused spending by carriers on carefully considered investment priorities."

For his part, Ashton likes the prospects of the outfits he owns, including Juniper, Avici and Lucent. He is more pessimistic about the likes of Cisco and

Tellabs

(TLAB)

, which he doesn't own.

Ashton suspects Cisco may be late with its big new router, and not in the running for the deals Juniper is getting. He also thinks Tellabs' products have reached the end of their cycles, and the company has had little success in acquiring or developing new gear.

But overall, with capital budgets expected to inch up a few percentage points this year -- for the first time this century -- telecom-network spending still isn't exactly overflowing. Accountants still have greater sway in the purchasing process, say observers.

"The theme behind IP is lower costs," says Crowell Weedon & Co. analyst Chris Sessing, who has a buy on

Nokia

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but no ratings on Juniper and Cisco. "Carriers are still in a very tight budget mode and will be for a few more years."

Still, a few perpetual worriers wonder whether Juniper is running into familiar territory by adding some new customers like the failed Global Crossing.

"We could see a decent year," says John Lynch of Asset Recovery Center, a used networking-equipment trading firm. "But now we see Juniper selling again to customers that couldn't pay their bills the first time around."