The challenges are coming from all directions now at

Cisco

(CSCO) - Get Report

.

The big San Jose, Calif., communications gear maker has spent much time of late defending its Internet router market from surging competition at the low end. But now a report from a leading tech research shop indicates that Silicon Valley rival

Juniper

(JNPR) - Get Report

has been busy taking share from the top.

In the two-horse race for sales of high-capacity Internet routers, Juniper managed to increase its share by 7 points in the fourth quarter, Dell'Oro Group says. Meanwhile, Cisco saw its share drop 6 points from third-quarter levels, according to the soon-to-be-released report.

As a result, Juniper now holds 30% of the market, while Cisco has 63%. Though Cisco still dominates the market, the shift in share marks a significant turnaround for Juniper, largely fueled by the introduction late last year of its Gibson super router. At midafternoon, Cisco was off 3 cents at $13.17, while Juniper was down 38 cents to $8.18.

Trumping Cisco

Routers are the mail sorters of the Net, quickly forwarding information traffic to and from addressed locations.

Juniper's T640 router, more affectionately known as Gibson, managed to trump Cisco at its own game by offering a faster, 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 or mini-Gibson.

Meanwhile, Cisco has been contending with competition at a more rudimentary level as lower-cost router and switch offerings come to the market from the likes of

Dell

(NASDAQ)

and

Hauwei

. Last month, Cisco sued Huawei, accusing the Chinese equipment maker of patent infringements. Huawei's distributors have since pulled much of the products from the U.S. market.

There was a bit of good news in the report for everyone: The fourth quarter saw a rare uptick in total core router sales. Despite a continued slide in networking gear sales overall, the high-capacity router market grew to $157 million, an 11% increase from the third quarter.

Ebb and Flow

While the shift in market share brings Juniper back to nearly a third of all big router sales, the increase isn't altogether surprising, considering the ebb and flow of the two companies' product cycles. Cisco knocked Juniper's standings down to the mid-20% range most of last year on the strength of its new core router sales.

The race between Juniper and Cisco has long been one of the more hotly contested, but the market has mostly been shrinking as phone companies allocate less money to network expansion. In 2001, core routing was a $1 billion market. This year will likely fall to almost half of that.

Adding to the money crunch, Internet traffic levels, once thought to be rising at a breakneck pace, actually have grown at a far less spectacular rate.

Also, networks themselves have changed. Originally it was thought that each network would have a handful of main junction points that would become bottlenecks as Net traffic grew. But Internet and phone service providers increasingly built more decentralized networks, which distributed traffic over more routes, lessening the need for massive core routers.