Cisco Systems Inc. (Nasdaq: CSCO) officials bragged last night in the company's quarterly conference call that they've nabbed 3 percent to 5 percent of the high-end router market from Juniper Networks Inc. (Nasdaq: JNPR). The claims point to a vicious price war that may be escalating between the two companies as service providers continue to tighten their belts.

Cisco cited no direct data supporting its claim. But the jab succeeded in bringing Cisco's famous rivalry with router maker Juniper to the forefront (see Cisco: No Bottom Yet).

Specifically, the claim again raises speculation that Cisco is slashing prices and has embraced a win-at-all-costs attitude toward stamping out its smaller rival. Some analysts familiar with Cisco's public relations tactics suggest that Cisco really gained more market share than it's letting on. They reckon Cisco is hoping to get some attention now for the news of the market share gain and then more attention later for having done better than it claimed.

Morgan Stanley Dean Witter & Co. analyst Chris Stix has written that Juniper's distribution channels showed "evidence of significant discounting" by Cisco. In his summary of Cisco's most recent earnings call, Stix says Cisco probably gained 7 to 10 market-share points versus Juniper in the quarter, given that Juniper's core router orders dropped 39 percent sequentially.

CIBC World Markets' Stephen Kamman also noted that Cisco's market share claims, "could be on the low end and [we] would not be surprised by a higher actual gain."

Cisco says its market-share figures are based on its own internal estimates. Some say they should have held back until they could cite real numbers. "They shouldn't do that. That's our job," says Infonetics Research Inc. analyst Kevin Mitchell.

Mitchell says it's hard to prove what Cisco's talking about, as it hasn't yet shared its category sales data with analysts. He explains that it usually takes a week for Cisco to take its data from a fiscal quarter and match it up to the comparable calendar period.

However, a jump in high-end router market share shouldn't surprise anyone, says Kamman. Juniper released its OC192 (10 Gbit/s) router first, and it had the market all to itself, he says. But service providers want more than one supplier for their equipment, so it's natural that Cisco would sell some systems and take back some market share. In the long term, Kamman says, the high-end router market is a two-horse race, and Juniper's been consistently ahead of Cisco in getting faster products to market more quickly (see The Internet Core Routing Test: Complete Results).

Juniper continues to say it is focused on customers, not competitors, but many wonder how well the company would fare if Cisco began to get more aggressive on pricing. Looking at the overall core router market, Cisco is still the giant. Infonetics estimates that Cisco won 66 percent of the core router market's revenues in the first quarter of 2001, compared with Juniper's 32 percent share and Avici Systems Inc.'s (Nasdaq: AVCI; Frankfurt: BVC7) two percent.

An all-out price war would also have an impact on earnings, having the effect of driving down profit margins for both companies.

Juniper wouldn't directly address Cisco's comments. "Our win ratio, and the fact that Juniper Networks now has more than 500 service provider customers worldwide, is how we measure the business, and that remains strong," says spokeswoman Kathy Durr.

Roland Acra, a vice president and general manager in Cisco's service provider business, commented broadly on Cisco's strategy versus its competitors, in remarks provided by a Cisco spokesperson. "It's business as usual for Cisco, which means we are focused on meeting our customers' needs as the path to winning business.

"We will always be competitive in the marketplace and are winning new business based on our strengths in technology, as evidenced by recent wins at Qwest and Global Crossing. Customers make buying decisions based on capabilities and technology, not price."

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.comMovers and shakers from more than 100 companies – including Cisco and Juniper – will be speaking at Opticon 2001, Light Reading’s annual conference, being held in San Jose, California, August 13-16. Check it out at Opticon2001.