Juniper's (JNPR) - Get Juniper Networks, Inc. Report first-quarter earnings report, due later today, promises to offer a highly anticipated peek at how well the Internet-gear revolution is progressing.
Wall Street has been willing to pay up for Juniper shares, seeing them as a ticket to the winnings from what's expected to be a lucrative equipment upgrade cycle.
At Wednesday's $8.41 close, Juniper shares trade at five times 2003 projected sales -- about even with rival
, and a far cry from the fractional multiple of conventional gearmakers
For now investors will be willing to accept what amounts to the financial status quo, calling for Juniper to post a penny-per-share profit on $155 million in sales. But tech bulls are far more keyed into any developments in Juniper's outlook.
As the maker of leading-edge networking gear like core routers, which manage teaming amounts of Internet traffic, Juniper is considered to be at the vanguard of a tremendous technology shift. Of course, it was that sort of sentiment that helped get the market into its turn-of-the-century bubble trouble. But with much of the chaff eliminated in the ensuing bust, investors and analysts are staking bets on some of the surviving companies and trends.
Various analyst reports this week and last have mentioned an upswing in trials and contract discussions Juniper has been having with phone companies. Certainly many of these early-stage events will fail to develop into actual sales, but the signal of greater activity feeds the high expectations.
To some degree the bulls subscribe to the determinist perspective, probably best represented by CIBC World Markets analyst Steve Kamman: If traffic levels are growing, network operators will need faster, higher-capacity gear to handle the load. By Kamman's estimates, core routers are to the next decade's network upgrade what the central voice switches are to today's phone system.
With Juniper selling the high-performance core router Gibson, Kamman likes the company's chances as the future unfolds. He rates Juniper a buy. CIBC has performed investment banking work for Juniper in the past year.
The Net router market "is small enough in absolute terms and important enough in relative terms to constitute the best growth bet in the current environment," Kamman says.
But the current environment is the slippery part. Juniper sells the bulk of its equipment to phone companies. For the past three years, phone companies have been slashing their spending plans to relieve the pressure on their sagging revenue numbers.
Most large-scale network expansion plans have been shelved and, increasingly, new gear is only bought when the old gear dies.
Need a real sense of how far along we've come in the Net gear revolution?
, one of the more forward-thinking telcos around, recently told Lehman Brothers analysts that they saw the total conversion to the Internet protocol, or IP, platform somewhere between 12 and 13 years away.
Lehman analyst Steve Levy, a member of the realist school of data gear speculation, says a decade is a long time.
"Now's a great time to be looking at the possibilities for IP vendors," says Lehman. "But it's not a great time to be investing in it."