The company has spent the past year trying to deflect barbs that competitors -- notably, Alcatel (NYSE: ALA; Paris: CGEP:PA) and Redback Networks Inc. -- are eating away at its market and stealing IPTV business that should have gone to Juniper. CEO Scott Kriens has done his best to respond, but investors don't seem satisfied -- neither with the explanation, nor with the stock's performance.
A glance around the stock market makes it obvious why investors are concerned. Juniper stock closed at $17.47 yesterday, down 32 percent from its price a year ago. By contrast, Alcatel and even Cisco Systems Inc. (Nasdaq: CSCO) -- which, like Juniper, has spent the last two years in the doldrums -- are up on the year. And Redback has surged mightily.
Table 1: Juniper Stock: Behind the Curve
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On top of all this, Juniper is facing the chagrin of Wall Street for a recent "clarification" that sent analysts scurrying to lower their 2006 earnings estimates.
Juniper said its third quarter, which ends in September, would see revenues about equal to the second quarter. Analysts had expected third-quarter revenues to reach $597 million, compared with anticipated second-quarter revenues of $567 million, according to Reuters Research . (See Analysts Jump on Juniper.)
The announcement was not a change in earnings forecasts, but a clarification of previous forecasts, Juniper officials say. Still, analysts seem to be feeling a bit stung. ("Only Juniper could call it a 'clarification,' " one scoffs.) It's true that Juniper never promised a rosy third quarter -- but the company did say to expect growth in the second half of 2006, and it let analysts assume that third-quarter growth would be a part of that. Now, it's telling them all the growth will be packed into the fourth quarter.
There's not much Juniper can do about that now. The longer-term concerns still revolve about IPTV and market share.
Alcatel, in particular, has been reporting one IPTV win after another, many of them using the company's 7450 Ethernet Service Switch -- a box for which Juniper offers no direct competitor. (See Alcatel Router Revenues Surge.)
Juniper denies that it's in trouble with IPTV. Officials repeatedly point out that Juniper has routers ensconced in the top two IPTV deployments in the world -- with Hong Kong's PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) and Italy's Fastweb SpA (Milan: FWB) -- and eight of the top 10. "Seventy percent of all IPTV subscribers in the world are running on Juniper's edge equipment," says Shailesh Shukla, vice president of carrier and service provider marketing. (See Juniper Looks Beyond IPTV and Juniper Defends Core Business in Q1.)
And Juniper appears to be holding its No. 2 status behind Cisco in routing, despite Alcatel's claim of significant market-share gains in certain edge-routing categories. (See Juniper Touts Ranking.)
Juniper further believes it's unfair to assume Alcatel's wins are stealing Juniper routing business.
Alcatel's IPTV-related wins have come mostly in the Ethernet aggregation space, gathering up the Gigabit Ethernet flows that will be used to carry video. Juniper doesn't even sell an aggregation product; rather, its IPTV work lies in the IP routers that lie deeper in the network, Shukla says.
"The market confuses the IPTV hype and the reality," Shukla says. "In the segments that we play in, we are the leader. And we have not shared all of the wins we have gotten in the last two years."
Analysts don't completely buy that line of thinking.
Prudential Equity Group LLC analyst Inder Singh remains unconvinced that Juniper is being used as a key video-carrying component in all of those IPTV deployments. And others note that whatever job Alcatel's systems are doing, they're taking work away from Juniper.
"I would agree Juniper does not do aggregation in a traditional sense, but Alcatel is fulfilling the role of the edge router and subscriber management," says Erik Suppiger, an analyst with Pacific Growth Equities Inc. "Alcatel is using a different architecture to address a lot of the functionality Juniper would otherwise provide."
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