The answer comes down to insecurity about Juniper's recent acquisition of NetScreen Technologies. Amid a glowing earnings report for September, Juniper noted that security revenues fell short of internal goals by 10 percent, falling to $90 million from $94 million in the previous quarter.
Some analysts were disappointed by the drop in NetScreen revenues, and some others say it may be part of a broad trend reflected by pricing pressure in the firewall and security market.
The NetScreen revenue shortfall could have been a chain reaction triggered by a tough market, according to analyst Mark Sue of RBC Capital Markets. In a note issued late last week, Sue noted that SonicWall Inc. (Nasdaq: SNWL) dropped hardware prices by 15 percent "across the board" late in October. Juniper followed suit by cutting prices to distributors on the former NetScreen portfolio, with discounts of 10 to 30 percent.
"In network security, we believe conditions continue to be difficult for Juniper, as pricing competition is reemerging following a slowdown in demand in the low- and mid-range firewall markets," Sue writes, adding that he thinks the industry is seeing "increased levels of discounting for security appliances" all around.
If there is indeed a price war developing, lower prices won't necessarily create higher sales volumes, because the security appliance market isn't showing that kind of "demand elasticity," Sue adds.
Several other analysts aren't as paranoid -- they chalked up the NetScreen softness to the usual post-acquisition hiccup, as the NetScreen deal had just closed in April (see Juniper Q3 Tops Estimates, Juniper Buys NetScreen, and Juniper/NetScreen Merger OK'd).
Juniper and SonicWall officials could not be reached for comment.
Overall, analysts remain bullish on Juniper and on the NetScreen acquisition in particular. "We expect a strong [December] quarter from NetScreen," wrote analyst Steve Kamman of CIBC World Markets immediately following Juniper's Oct. 14 earnings call.
It's worth pointing out that Juniper's routers are going gangbusters, the reason for sunny earnings calls from the company's corner this year (see Juniper Surprises With Q2 and Juniper Profits in Q1). Core routing is a particular highlight right now, as Juniper recently won that portion of CN2, the next-generation Internet Protocol (IP) network of China Telecommunications Corp. (NYSE: CHA). (See Juniper Trumps Cisco's China Deal.)
That deal brought Juniper's core-router market share to 23 percent from 20 percent a quarter ago, Sue writes. Those gains might be temporary, though; Sue expects Cisco to rebound with its CRS-1 core router and a half-size version that's yet to be released (see Cisco Unveils the HFR and Cisco Sprints Ahead With HFR).
In addition to expanding Juniper's products beyond routers, NetScreen offers a doorway into the enterprise market. The eventual plan is to merger NetScreen's security technology with Juniper routers.
— Craig Matsumoto, Senior Editor, Light Reading
For more info on the state of industry financials, check out the coming Light Reading Live! event:
- Light Reading's Telecom Investment Conference, in New York City, December 15, 2004