Juniper CEO: Low-Margin Metro?

WASHINGTON, D.C. -- Juniper Networks Inc. (Nasdaq: JNPR) built its business in the core of the network, with its M40 routers, and recently moved closer to the edge, with its M5 and M10 products. Now Juniper is looking toward metropolitan area networks with hopes of boosting the traffic at these regional junctions.

The catch is that Juniper president and CEO Scott Kriens isn’t sure that the margins are good enough to use core routing technology for lighter, less expensive products.

After his keynote address at the Next Generation Networks (NGN) conference here, Kriens told Light Reading that Juniper hadn’t yet decided what tactic -- minority investments, acquisitions, or strategic partnerships -- it will use to push its products toward metro networks. “As our involvement goes, it’s a space we haven’t made conclusions about,” he says.

Kriens doesn't yet know what business model will succeed in the metro market. “It's not clear how the space is going to shape up or whether it's a high-margin, systems-rich business -- or an add-drop multiplexer business."

“The question really is: How complex is the problem?” he explains. “If its purely a hub and spoke proposition where you drop in a low-cost hub and some simple spokes to all the connections -- that has more to do with the cost of the hardware. If you instead make a rich mesh with a lot of software elements tying everything together, that's something else entirely.”

Kriens, however, knows that Juniper needs to make up its mind soon. “We are not going to be the company we have the intention of being if we simply allow [metro market expansion] to happen on someone else’s schedule.”

Kriens remarked on Juniper’s developing business minutes after he spoke to a packed ballroom. He talked about the dangers of networking equipment companies trying to do too much in too many different product categories. (He didn’t mention anyone by name.)

During his prepared remarks, Kriens predicted that the history of the computer industry would repeat itself in regard to networking equipment makers. Once there was IBM Corp. (NYSE: IBM) for everything related to computers, he said, and then there was Microsoft Corp. (Nasdaq: MSFT) for software, Oracle Corp. (Nasdaq: ORCL) for databases, Intel Corp. (Nasdaq: INTC) for chips, IBM for mainframes, and Sun Microsystems Inc. (Nasdaq: SUNW) for servers.

Kriens hinted that Cisco Systems Inc. (Nasdaq: CSCO) has become the IBM of the networking business and will eventually meet the same fate, as competition forces carriers to buy the best technology in each product category rather than going to one supplier for everything. Companies that don’t know their boundaries and respect those boundaries are in trouble, Kriens says.

However, Kriens deflated his rhetoric slightly by admitting that even he’s not sure where finite boundaries exist in the networking world. So which firms are in the best position right now?

“NGN,” Kriens joked, referring to the conference he was addressing. “I suspect they could fill a football stadium next year with people seeking the answer to that question.”

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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