The rise of packet-optical transport systems (P-OTS) and of carrier-owned content delivery networks (CDNs) is going to dilute the need for more service-provider routers, believes ACI Research analyst Ed Zabitsky.
Juniper announced Monday afternoon that fourth-quarter earnings would be even lower than the company had warned in October due to weakness in router sales, particularly in North America. (See Juniper's Q4 Got Even Worse and Juniper's Getting Stalled on Revenues.)
Most analysts concluded that AT&T was at fault. As the T-Mobile US Inc. deal unraveled, the carrier curbed its spending to try to "turn the equipment vendors into lobbyists," wrote analyst George Notter of Jefferies & Company Inc. in a note earlier this week.
Zabitsky sees something bigger going on, though. Since early in 2011, he's been saying that router demand, particularly core routers, is going to be in trouble.
The rise of P-OTS, for example, is a way to accommodate growth without using so many core-router ports; "router bypass" is a favorite phrase around this topic. Then you've got CDNs, which let carriers cache content locally rather than reaching across the network to get it -- call it "network bypass," if you will. Both effects will dampen the demand for routers, Zabitsky thinks.
One key point of his argument is that Juniper's T-4000 core router began shipping in the fourth quarter and doesn't seem to have kicked off a wave of orders. That would be unusual. "Every new major product, when it comes out, comes with huge orders from existing customers," Zabitsky says.
But Juniper's bookings in the fourth quarter were about on par with its sales -- a book-to-bill ratio of about 1.0, as the company announced Monday. The fact that Juniper didn't say the book-to-bill was greater than 1.0 means it probably wasn't, Zabitsky says, and that's an indication that sales aren't growing in the immediate term.
Even with router revenues down, the T-4000 should have had an impact on Juniper's bookings, he says. To him, it all means that core-router demand might be down inherently.
Whether Zabitsky is right probably won't be settled when Juniper announces earnings on Jan. 26. (And because it's in that pre-earnings zone, Juniper declined to comment for this story.)
Most analysts expect a pretty big 2012 from Juniper. It's got four new product lines to ship -- the T-4000, the PTX, the QFabric super-data-center platform and the MobileNext evolved packet core. Analysts seem a little less certain about MobileNext, but they've been pretty jazzed about the other three.
Here's some more about Juniper's troublesome quarter:
- Juniper's Q4 Got Even Worse
- Vendors' Q3/Q4 Earnings Could Suffer
- Juniper's Getting Stalled on Revenues
— Craig Matsumoto, West Coast Editor, Light Reading