Telco Processing Revolution
Then take Juniper Networks Inc.'s numbers (Nasdaq: JNPR). There were plenty (see Juniper Counts Q4 Strong). The funny thing about these two companies is that they are now partners. As we've pointed out before, Juniper's engineered a masterful plan to pick off Lucent's customer base (see Another LU-LU).
One company is growing, the other is not. Why this continues to be a mystery to some people perplexes me. It's as clear as night and day: Juniper has occupied the high-value, high-performance service provider routing and security space – the fastest growing and most promising segment of the telecom industry. As Juniper CEO Scott Kriens says, they're in the "sweet spot."
Meanwhile, Lucent remains stuck in the legacy circuit-switching businesses. Yes, Lucent is trying to salvage its business around next-generation wireless technology and even appears to be making a decent go at it (see Cingular Confirms 3G Trio). But like a large family living on a single paycheck, it struggles to meet the bottom line in supporting some 30,000 employees – and masses of pensioners. A one-product wonder ain't going to cut it. It needs a portfolio of next-gen infrastructure products. And for that it's partnered with... Juniper.
The reseller deal with Lucent looks to be a great deal for Juniper. The company announced last night that, for the first time, its business with Lucent reached 10 percent of its revenue.
Juniper's Kriens, in full recognition of Juniper's sound position as a routing kingpin, sounded unusually glib on Juniper's conference call last night, almost mocking the competition. Kriens says Juniper will continue to occupy the data processing space, staying away from cutthroat businesses such as physical transport.
"You don't make money digging trenches," Kriens said. "You make money in processing the data. We are in the virtual business."
Where does this all lead? To lots of pain for those in the physical, non-virtual world, as Kriens describes it.
"Let the flailing continue," said Kriens, predicting more failure and consolidation in the communications business, and sounding quite confident that Juniper would be a winner.
Kriens's point is that Juniper has no interest in moving into equipment markets such as access and transport, a thought that must have been painful to some competitors that have been banging their heads against that wall (including Lucent).
Therein lies the beauty of a Juniper conference call. Kriens is enraptured with the technology and communicates articulately where it is going. He's a technologist at heart.
Part of this vision springs from Juniper founder and CTO Pradeep Sindhu, who thinks of Juniper more as a "processing" or "computing" company than as a networking company. Sindhu says the challenge for Juniper is in processing and securing data, rather than just moving it. Juniper is trying to automate the way the network "thinks."
This vision poses some terrible dilemmas for those companies hoping to make money on the FTTP spend, in which their margins are sliced to the bone by powerful incumbent carriers that need to squeeze every dollar out of their capital spending budgets. Kriens has a point: If you don't add processing power, are you adding value? If you're selling a dumb fiber widget, is there any way to differentiate? In short, it's pretty hard (see FTTP Influenza).
If you're not virtual, as Kriens defines it, and in the business of processing, you're at high risk of becoming a commodity. I suppose a lot of people who listened to Juniper's conference call might have lost some sleep last night. Expecially those in the trenches.
— R. Scott Raynovich, US Editor, Light Reading