What's Eating Juniper's Stock?

The day Cisco Systems Inc. (Nasdaq: CSCO) took to the world financial stage to announce its quarterly earnings (story to come), its core router archrival Juniper Networks Inc. (Nasdaq: JNPR) was having another bad share day.

In fact, Juniper's stock today hit an all-time low, down $0.08 (0.94%) to $8.43. But more telling, Juniper shares have lost 30 percent of their value in the last month, and 90 percent of their value in the last year. This week marks the first extended time Juniper's shares have dwelled in the single digits since its initial public offering in 1999. Shares briefly dipped below $10 in 2001.

There has been no shortage of reasons for the weakness in Juniper's shares. These include a bad telecom market, recent management shifts, the rumors that Juniper CFO Marcel Gani may be considering jumping to a startup, and the possibility that a Juniper acquisition could dilute shareholder value.

The company has reportedly been looking to expand its entrance into the edge routing business via acquisition, with one potential candidate being Unisphere Networks Inc. (see Juniper Scoping Out Unisphere?). A lower share price could scuttle such a deal, since Juniper's currency for such an acquisition would likely be its stock.

"Some investors may have been worried that, if Juniper is on the prowl, it would pay too much for Unisphere," says Gabriel Lowy, an analyst at Credit Lyonnais Securities, who observes that watching day-to-day stock movements in the telecom sector can be trying, because there is so much fear in the sector.

Other concerns may loom larger, most notably concern about Juniper's major customers. Here's a list of some of the issues dogging Juniper's share price:

Customer Meltdowns Both WorldCom Inc. (Nasdaq: WCOM) and Qwest Communications International Inc. (NYSE: Q) have been making spending cuts galore due to a slowdown in their business and sundry financial troubles (see WorldCom's Woes Mount and Qwest Posts Loss, Preps Asset Sales. That's bad news for Juniper because WorldCom and Qwest accounted for approximately 14 percent and 11 percent, respectively, of Juniper's recognized revenues in 2001. The two carriers are expected to spend about $8 billion fewer dollars on their networks in 2002 than they did in 2001.

Juniper says that while investors use its stock price to keep score, it is mainly concerned about winning new customers and taking care of old ones. "Today Juniper has more than 500 customers, more than double what it did in 2001," says Adam Stein, Juniper's director of corporate marketing. "That said, those customers are spending frugally right now."

Executive Departures Carl Showalter, Juniper's marketing boss, recently left the company to become a venture capitalist (see Lightspeed Drafts Former Juniper VP). Also, Light Reading has heard rumors, with no independent confirmation, that Marcel Gani, Juniper's CFO, is considering changing careers as well. Gani, who has been with Juniper since early 1997, is said to have told at least one person that he is considering startup opportunities.

Juniper says it won't comment on personnel issues.

Cisco's Shadow Cisco met expectations in its quarterly results announced shortly after the market closed, and the company maintains a strong balance sheet. This shows that Cisco remains in a fairly strong position, especially when compared with networking companies more firmly entrenched in the service-provider market, such as Juniper.

Meanwhile Juniper, a smaller company with a more focused business, reported net revenues for 1Q02 that were 63 percent less than the company's year-ago results (see Juniper: No Surprises).

On the other hand, Juniper isn't standing still, and its product strategy looks to be solidly on track. The company just announced its T640 core router along with four paying customers (see Juniper Goes Terabit With the T640).

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com