Juniper Networks Inc. shares slipped nearly 5 percent today after an analyst note this morning cast clouds over the company's growth prospects.
Prudential Equity Group LLC analyst Inder Singh downgraded Juniper to Neutral Weight from Overweight, citing concerns about the company's long-term growth potential. Singh expects Juniper will keep its No. 2 position in the router market, but he isn't sure the market's long-term outlook favors Juniper.
Juniper shares were down as much as $1.63 (7.3%), to $20.43, today. The stock closed down $1.01 (4.58%) at $21.05.
Singh sees core-network equipment growing roughly 20 percent this year and next, compared with 30 to 40 percent during the past two years, as service providers emphasize metro and edge buildouts. At the core, Juniper can sell itself as the technological alternative to Cisco Systems Inc.. But that advantage dissipates as the view shifts to the network edge, where "other competitors stand well-positioned to grow market share," Singh writes.
Alcatel and Redback Networks Inc. both number in that camp, particularly given their attention to IPTV deployments during the past year. (See Alcatel Router Revenues Surge and How Redback Won BellSouth.)
Singh has concerns about Juniper's core network offerings, too, noting that the T-series routers were introduced in 2002, while Cisco trotted out its CRS-1 core router in 2004.
"More frequent market refresh is needed to maintain a lead in customer mind share
and avoid a potential increase in pricing pressure over time," Singh writes. "In addition, we believe an aging core product
portfolio might make it more difficult for Juniper to pull in business further towards the edge of the
network as carrier spending increases in this area."
Juniper has tried to expand its territory via acquisitions. Last year, the company picked up VOIP equipment provider Kagoor and traffic engineering startups Peribit and Redline, and in 2004 it forked over $4 billion for security firm NetScreen Technologies. (See Juniper to Acquire Kagoor, Juniper Takes Two: Peribit & Redline, and Juniper Buys NetScreen.) But Singh isn't convinced Juniper is ready to knit the parts into a cohesive whole.
"We do not believe these newer businesses will be sufficient to offset the slowing growth of Juniper's core products," Singh wrote.
Singh's comments include some questions that have been asked about Juniper for some time. (See Juniper's Slow Shopping Trip and Juniper's Marketing Mystery.) And he's not the only one questioning Juniper's growth prospects.
"The bigger issue for Juniper is that '06 may mark the year when the company may not grow significantly faster than the market," says Mark Sue, an analyst with RBC Capital Markets. That would be significant, given that the past two years saw growth coupled with marketshare gains, he says.
On the plus side, Singh believes Juniper's reseller agreement with Siemens AG is intact, even though Siemens is rumored to have purchased routers from Beijing Harbour Networks Co. Ltd. (See Will Siemens Sail with Harbour?) That deal is probably aimed at the Chinese market and shouldn't affect the Juniper-Siemens relationship, at least in the short term, he writes.
Juniper officials declined comment, citing a policy not to comment on any given analyst report.
â€” Craig Matsumoto, Senior Editor, Light Reading