Juniper bids 2006 good riddance

As 2007 arrives, one company that probably welcomes the calendar change more than most is Juniper Networks, for whom next year promises to be better than this one.

As the year’s end neared, JP Morgan analyst Ehud Gelblum upgraded Juniper’s stock, predicting the router vendor’s revenue growth would hit bottom in the fourth quarter and begin to rise again in 2007. UBS Investment Research predicted Juniper’s router sales will grow 17% next year after growing just 4% this year and 40% last year. (The company’s total revenue will be up 12% this year to about $2.3 billion, UBS said, and increase 17% in both 2007 and 2008.) Its net income will likely be down about 10% this year from 2005, when it nearly doubled. But next year, net income should grow 16%, UBS said.

In sports terms, one could call it a “rebuilding year” for Juniper, which developed key new products and product enhancements while struggling with some other unique hurdles. Early next year, sales of those products could start to ramp, and some of this year’s entanglements will be gone.

As Susquehanna Financial Group analyst Joe Chiasson tells it, Juniper gained market share against Cisco in 2005 as carriers delayed purchases while transitioning to Cisco’s CRS-1 core router. But in 2006, Cisco fought back, he said, recovering more than half of the market share it lost to Juniper the year before.

Juniper now hopes sales of some new products--and existing products with recent improvements--will start to ramp early next year. In the first quarter, Juniper’s most Ethernet-centric product yet, the MX960 Ethernet services router, will become generally available. Presenting the MX960 as Juniper’s long-awaited answer to Cisco’s 7600 and Alcatel’s 7750 platforms, Juniper’s chief executive officer Scott Kriens called it “far more than just our participation in the carrier Ethernet market segment. I think it’s going to be the end of the carrier Ethernet market segment.”

Juniper will also look to ramp sales of the newest version of its broadband services router, whose capacity was boosted to 320 Gb/s in September, as well as a new 40-Gb/s interface for its core routers.

At the same time, Juniper’s chief rival, Cisco Systems, is moving forward aggressively, making acquisitions and investments in the residential video space. Cisco had a particularly strong fall quarter thanks mainly to service providers and to the CRS-1. And early next year, it will begin trialing a new video content caching appliance with the 7600.

While Cisco is moving toward a more end-to-end approach, acquiring everything from set-top vendors to Ethernet chip-makers and vowing to integrate them ever more tightly in the future, Juniper will take a more open approach, appealing to carriers that don’t want to be overly dependent on Cisco. For example, the latest version of Juniper’s SDX-300 service delivery platform, released last month, allows it to communicate with third-party video-on-demand servers to route VOD content.

Friends may become foes for Juniper in 2007. The company has benefited from partnerships with Lucent Technologies, which could become a more direct competitor following its merger with Alcatel. And another Juniper partner, Ericsson, will try to acquire router vendor Redback Networks next year, potentially selling Redback’s gear where it might otherwise have sold Juniper’s. But Kriens has expressed confidence that Juniper will retain its relationship with Alcatel-Lucent. And because the Ericsson partnership mostly relates to Juniper’s broadband and core routers (not the edge routers that are Redback’s focus), Ericsson’s acquisition of Redback shouldn’t be severely damaging to Juniper. According to Leopold’s estimates, Ericsson might contribute about 8% of Juniper’s annual revenue, with edge routers contributing just 8% of that 8%. Calling it conservative, Leopold imagined Juniper might miss out on $25 million in revenue next year if Ericsson closes its acquisition.

Finally, moving into the new year, Juniper will leave behind a months-long investigation into its stock option awards practices--one that prevented the company from filing audited financial reports for the second half of this year. Juniper will finally file those reports early next year, as the investigation recently ended, resulting in an anticipated $900-million charge that is covered by the company’s cash coffers. With that matter concluded, UBS said, “Juniper can now focus on execution.”