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Juniper loses ground to Cisco

Gains for Cisco Systems in high-end routers turn into losses for shareholders of Juniper Networks.

! -- eds changes, 2/15, 9:50 am pt: change refs of "estimates" to "reported" or "said" --> Gains for Cisco Systems in high-end routers turned into losses for shareholders of Juniper Networks on Thursday.

Fourth-quarter data from research firm Dell'Oro Group indicate Juniper's share of the market for "long-haul" routers that can handle 10 gigabits per second and faster fell to 27 percent from 32 percent in the third quarter. Dell'Oro's report is the latest evidence that Juniper has lost ground to Cisco in recent quarters, after several years of eroding Cisco's dominant hold on the high-end market.

Shares of Juniper, which have been sliding since early December while the overall Nasdaq stayed relatively flat, were down as much as 13.7 percent Thursday morning. About halfway through the session, Juniper was about 12 percent below Wednesday's close of $13.01.

Juniper representatives were not immediately available to comment. A spokeswoman from Juniper said the company generally doesn't comment on market share data.

Cisco's portion of sales for high-end routers used in long-haul networks covering the distance between cities increased to 69 percent from 65 percent, Dell'Oro said. As recently as the second quarter of last year, Dell'Oro reported, Cisco and Juniper held 58 percent and 34 percent of that market, respectively.

Other parts of the network equipment market--including routers for corporate networks and high-speed networks within metropolitan areas, and Ethernet switching--also saw Cisco either hold or increase its share, Dell'Oro reported.

The market share data mirrors the differing sales trends reported by the companies. Juniper, which gets the vast majority of its business from high-speed routers for long-haul networks, reported a 25 percent sales decline in the fourth quarter. Cisco managed to keep sales flat, despite the recession and a massive drop in spending by communications carriers.

SG Cowen analyst Christin Armacost says Cisco's recent success stems from the company's introduction last year of an ultrahigh-end router that largely closed the performance gap with comparable products from Juniper. Although both companies are pushing into "edge" networks for metropolitan areas, Juniper will have a hard time increasing its percentage of edge router sales until the company improves its offerings, Armacost said in a research note. Many analysts believe this particular market still lacks enough bandwidth to meet demand, unlike the long-haul transport market.

"Juniper will be challenged to gain significant share at the edge until it can increase its density of lower-speed interfaces and lower its price/performance metrics," she wrote.

The overall router market fell 3 percent in the fourth quarter to $1.78 billion, Dell'Oro said. Companies did see increased sales of routers designed for OC-3 and OC-12 backbone lines, Dell'Oro said.

OC-3 and OC-12 markets, which include edge routers, saw increased sales in the fourth quarter for virtually all major providers, said Tam Dell'Oro, founder of the Dell'Oro Group. Cisco led the way with $440 million in revenue, up 32 percent from the third quarter. Juniper posted $26 million in revenue, up 30 percent. And Unisphere's sales rose to $54 million, an 8 percent improvement.

Thursday's report is the second one this week to show a dip in router spending. Infonetics Research on Wednesday reported a 4 percent drop in worldwide sales of routers for long-haul networks last year.

Many telecom companies drastically reduced their capital spending last year after discovering they wildly overestimated demand for long-haul transport. Infonetics believes that decline will continue this year; the research firm predicts capital spending will drop 25 percent to 27 percent this year.

Cisco may have held up better than Juniper because the former doesn't rely as heavily on communications carriers for business, said Tam Dell'Oro, founder of the Dell'Oro Group. Cisco's strength traditionally has been with corporations and other large enterprises.

"I suspect Cisco's rate of decline wasn't as much as some others because enterprise users are not cutting back their expenditures as dramatically as services providers are," Dell'Oro said.