For Juniper, Single-Mindedness Wins the Race
Amidst the carnage in networking companies, Juniper Networks (JNPR ) has stood out as a beacon of growth. On Jan. 16, the company roundly beat analysts' expectations when it announced net earnings of $60.3 million, or 17 cents per share, during the fourth quarter of 2000. Last year, Juniper's revenues grew 600%, to $673 million, vs. 1999's revenues, and it logged profits of $147.9 million, up from a $9 million loss in 1999.
Such success has Cisco Systems (CSCO ) running scared. And so on Jan. 31, the networking giant responded, introducing a line of products aimed at stemming the upstart's inroads into a traditional Cisco market. Will Juniper be the Cisco slayer? Wrong question. Juniper has no plans to challenge Cisco for the title of networking king. Nor does it want the headaches of dealing with Cisco's soup-to-nuts provision of systems that power everything from big Internet service providers to consumer home-networking products.
In fact, Juniper is perfectly content focusing on its lucrative core market, providing the big Internet protocol (IP) routers that direct data traffic for large communications companies. That $2.4 billion market is growing at a 150% annual clip. "We're big believers in focus, because in previous lives we were all in organizations that diversified too fast and lost their edge in the place they were best," says Carl Showalter, Juniper's marketing vice-president. That approach has enabled Juniper to grab 30% of the market in its sector in a mere two years. Analysts expect it to gain an additional 4 to 8 points of share on Cisco in the next year.
KEEPING IT SIMPLE.
But can Juniper maintain its tight focus and still keep growing at this astonishing pace? Most analysts say yes. In fact, they praise Juniper for being the anti-Cisco. In the incredibly complex market for data-networking equipment, Cisco's end-to-end approach is rapidly falling out of favor in much the same way that AT&T bombed when its size inhibited its ability to nimbly counter faster-moving telecom rivals. "Juniper clearly knows where it needs to be," says Christin Armacost, an analyst at investment bank S.G. Cowen. "It doesn't try to be everything to everybody. That's the foundation of their success."
Cisco's iconic CEO John Chambers has taken the opposite tack of late. Once a company that, like Juniper, made its name in big IP routers, Cisco has moved upstream, to optical-networking equipment, as well as downstream, to consumer and small-business products. These moves have been made largely through acquisitions.
But lately, analysts have been wondering if Cisco is juggling too many balls. That certainly appears true in Juniper's niche, where Cisco has been playing catch-up for nearly a year. True, Cisco's latest product, the 12400 series router, can jam data through networks at speeds up to 10 gigabits per second. But that only matches what Juniper's routers have been pumping out since last March. And analysts unanimously agree that Juniper's boxes are technically superior to Cisco's because the hardware does most of the data processing. Cisco routers still rely on software, which often results in slower speeds.
In part, the startup's speedy machines are a product of the driven style of Scott Kriens, Juniper's CEO. Despite soaring market valuations that could have made growth by acquisition easy, Kriens stuck to his knitting and concentrated on developing hardware that emphasizes speed, speed, and more speed. "Scott is very methodical. He's not reactive, he's proactive. But he also acts with a fair amount of conservatism in his execution," says Armacost.
Cisco, however, isn't likely to give up easily. Its new router will undoubtedly put Juniper on guard and could sway some new clients. "If you're only 50% better than Cisco, you're dead," says Armacost. "There are too many companies who got complacent and then got blown away."
But analysts say Cisco's new machine won't severely erode Juniper's customer base. For one thing, analysts believe that sometime this year, Juniper is expected to introduce a high-end router that can push 20 gigabits of data per second. Cisco may be able to sell its new hardware as an upgrade to its installed base of machines, "but that doesn't mean they will take away Juniper's customers," says Jim Duffy, a senior editor at Network World magazine.
Bigger challenges may come from Lucent (LU ), Alcatel (ALA ), and upstarts such as Avici Systems (AVCI ) and Pluris. These companies are looking down the road at a time when communications providers will be delivering streaming video and other data-intensive applications that could overwhelm the routers that Juniper currently sells.
Avici, in particular, is a "competitive threat," according to ABN Amro analyst Ken Leon. The company's "scalable" routers can carry five times more data than the current Juniper models. Although Avici has grabbed less than 1% of the market, it is lining up some powerful customers, including AT&T (T ), France Telecom (FTE ), and Qwest Communications (Q ). "I would have expected Juniper to move more quickly into this market," says Tim Smith, a network-infrastructure analyst at DataQuest.
So will Juniper be able to keep its lead in network-class IP routers? "That's the $64,000 question," says Network World's Duffy. More like the $6 billion question, since that's what analysts estimate the IP-router market will be worth in 2001. Juniper predicts that its annual revenues will double this year, to $1.5 billion or $1.6 billion. Some analysts say that might be conservative and put the number closer to $1.8 billion. But that's if Juniper can maintain its focus and its technology lead -- and keep the Cisco dog off its back.
By Jane Black in New York
Edited by Alex Salkever