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Optical/IP

Cisco, Juniper Go to the Mat

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.com Movers 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.

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whose 12/4/2012 | 7:59:05 PM
re: Cisco, Juniper Go to the Mat Cisco...
hitechguy 12/4/2012 | 7:59:01 PM
re: Cisco, Juniper Go to the Mat You don't have a monopoly when you have serious competition. Juniper is serious competition in the WAN.

hitechguy
voyeur 12/4/2012 | 7:58:58 PM
re: Cisco, Juniper Go to the Mat When you start pricing products at a lower margin in order to eliminate competition, you start having a monopoly. If you can control industry prices, you have a monopoly, regardless of market share. If Cisco is not careful, they could be the next Microsoft, attracting the DoJ's attention.
Lopez 12/4/2012 | 7:58:57 PM
re: Cisco, Juniper Go to the Mat When you start pricing products at a lower margin in order to eliminate competition, you start having a monopoly. If you can control industry prices, you have a monopoly, regardless of market share. If Cisco is not careful, they could be the next Microsoft, attracting the DoJ's attention.

Not sure where you learned economics, but predatory pricing only comes into effect IF you have a monopoly. It does not imply a monopoly.

Now, if you were at all aware of what is going on in the industry you would see that these companies are sitting on huge unsold inventories. What is the best way to get rid of excess inventory in a tough market? Sell it cheap. How do we know this is happening? Lowered margins. Cisco, Nortel, even Juniper, they are all doing it.
Lopez 12/4/2012 | 7:58:57 PM
re: Cisco, Juniper Go to the Mat When you start pricing products at a lower margin in order to eliminate competition, you start having a monopoly. If you can control industry prices, you have a monopoly, regardless of market share. If Cisco is not careful, they could be the next Microsoft, attracting the DoJ's attention.

Not sure where you learned economics, but predatory pricing only comes into effect IF you have a monopoly. It does not imply a monopoly.

Now, if you were at all aware of what is going on in the industry you would see that these companies are sitting on huge unsold inventories. What is the best way to get rid of excess inventory in a tough market? Sell it cheap. How do we know this is happening? Lowered margins. Cisco, Nortel, even Juniper, they are all doing it.
whose 12/4/2012 | 7:58:56 PM
re: Cisco, Juniper Go to the Mat Cisco has 66% of core router market. If it uses its dominant market position, and predatory pricing tactics to eliminate competition, then Cisco would be behaving as a monopolist. Are they? That's for the DoJ to determine and the courts to decide. They sure do act like Microsoft from time to time.
brichter 12/4/2012 | 7:58:55 PM
re: Cisco, Juniper Go to the Mat Juniper's product is comparable to Cisco's, and how did they gain market share? By cutting prices lower than Cisco's. That's not a monopoly, that's competition! So why do you think playing by the same rules, Cisco is trying to become a monopoly?
You can't have it both ways! Now, if Cisco starts selling below cost, you might have a case, but that's not what they are doing. Your statement that lowering prices to eliminate competition makes you have a monopoly is wrong. Better read the law before making statements like that, your ignorance is showing.

Author: voyeur
Number: 3
Subject: Re: How to you spell monopoly
Date: 8/9/2001 10:38:14 AM

When you start pricing products at a lower margin in order to eliminate
competition, you start having a monopoly. If you can control industry
prices, you have a monopoly, regardless of market share. If Cisco is not
careful, they could be the next Microsoft, attracting the DoJ's attention.
Lopez 12/4/2012 | 7:58:55 PM
re: Cisco, Juniper Go to the Mat The claims point to a vicious price war that may be escalating between the two companies as service providers continue to tighten their belts.

First you say that Cisco stole market share through price cutting.

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.

They you have a quote saying they stole it back with their 10gig cards.

Since both CSCO and JNPR are cutting prices, the first assertion is likely not the cause.

That leaves the second assertion, and despite the fact that JNPR won the LR test, perhaps customers got tired of the only 10gig solution out there reordering their packets?
cfaller 12/4/2012 | 7:58:52 PM
re: Cisco, Juniper Go to the Mat Cisco is not a monopoly, not by any stretch of the imagination. 66% share, while making Cisco dominant, does not make them immune to pricing pressure, which is government's rule of thumb.

If Cisco could raise prices without losing market share, then Cisco would be a monopoly. Clearly that is not the case, but that's not all that has to be proven. In order for the government to get involved, there has to be an abuse of that monopoly power, such as raising prices or stifling competition- the threat of consumer harm is not enough, there actually has to be an overt act that results in consumer harm.
voyeur 12/4/2012 | 7:58:47 PM
re: Cisco, Juniper Go to the Mat Ok, let's use the Microsoft analogy a little further. When Netscape came out, they were ahead because they were there first with something the customer wanted and had the market all to themselves. Then along come MSFT with there me-too IE. Low and behold, they eventually quash Netscape by lowering their margin and shipping it free!!! They get nailed by Jackson, and even though the appeals court overturned the remedy, the finding stands.

Fast forward to CSCO/JNPR. JNPR gets to the market first, CSCO follows. In order to gain market share, they squeeze their margins and force JNPR to do the same, hurting their business. So is the analogy that far off?

Lopez - So the assertions from post #7 are not necessarily mutually exclusive or contradictory.

brichter - Juniper didn't gain market share necessarily by cutting prices but by getting their 10G product out first (a la Netscape). When CSCO starts lowering prices, they are acting like a monopolist since they could afford to do so due to their other revenue and bankroll (a la MSFT).

cfaller - Market share is not the only rule of thumb, nor should it. But if CSCO starts pricing to lower the margins of competitors and eventually takes them out, it is a problem. Not only for the competing companies, but in that it stifles innovation. That was the main issue in MSFT, stifling innovation. Let's be honest, getting IE for free was great for the consumer, but when software companies had to worry about not raising the ire of MSFT, that was bad for innovation and new products.
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