Juniper Networks (NYSE: JNPR) is a telecommunications equipment vendor specializing in information routing and data security. Its router products are an indispensable part of any modern telecom network. It is second to industry leader Cisco Systems (CSCO), which holds a 60% market share, twice that of Juniper. Specializing in telecommunication carrier networking in the past, Juniper recently entered the corporate network market, vastly expanding its potential revenue base.
Consolidation has defined the overall movement of the industry, as evidenced by the recent mergers between Alcatel-Lucent and Nokia-Siemens. Juniper has been less active in growth through acquisition, and one of its key risks is that it derives a majority of revenue from a few key service carriers in the consolidated wireline and wireless industries. Juniper may have a more difficult time competing for sales as its competitors grow through consolidation.
Consumer demand for newer, faster technologies--such as the "triple play" bundle of video, voice and data--puts Juniper's legacy offerings in good position to capitalize on the trend. Furthermore, Juniper has diversified beyond the telecom customer base to the much larger enterprise network market.
Juniper Networks deals in infrastructure equipment and security services for the telecommunications industry and generated revenues of $3.32 billion in 2009. This contrasts with its 2008 total revenue of $3.57 billion. This decline in revenues mostly came from Juniper's routing products and service provider customers who purchased fewer products in 2009 as a result of the weakened global economy. As a result of the lower revenues, Juniper's net income declined from $512 million in 2008 to $117 million in 2009.
Juniper Networks breaks its business down into two reportable segments: i) Infrastructure, and ii) Service Layer Technology (SLT).
Juniper markets switching, routing and security solutions to service providers, enterprises and government agencies globally, via direct sales, strategic partners, and value-added resellers.
Service Provider networks consist of a variety of switching, routing and security elements that securely transport information (data, voice, video) between end-users, as well as between end-users and hosted applications, services and the Internet. Juniper markets switching, routing and security solutions to service providers and cloud operators.
Service Provider networks are typically physically segmented into distinct sub-networks areas-for example-access and aggregation networks, edge networks, and core networks are very basic and commonly used segment names. Juniper markets switching, routing and security solutions for these segments.
Service layer technologies provide better control and security to networks.
Juniper's product portfolio appears to be extremely biased towards high-growth sectors of telecommunications equipment. Routers have become a completely necessary part of modern telecommunication networks, so as long as networks keep growing, the demand for routers will keep growing. Also, as companies get larger and larger, they will need the ability to transfer more and more data, further benefiting companies like Juniper.
The growth of online video -- from YouTube, BitTorrent, and increasingly Television Studios' own forrays onto the Internet -- has already led to massive increases in the amount of data traveling across the Internet. A single, 30-minute video clip requires many thousands of times the bandwidth that a single email message requires. As such, online video has already required that carriers spend massive amounts to upgrade their networks, and this spending has benefited Juniper, the second-largest manufacturer of routers to direct traffic on the Internet after competitor Cisco Systems (CSCO).
More and more carrier networks are being upgraded or built with IP architecture and Passive Optical Network cabling in order to allow triple play technology over wireline networks. These new networks are replacing older, copper-based networks (ATM), because IP/PON expands bandwidth and accelerates the speed of information transmission. New routers must be compatible with new network architecture, and Juniper has shifted heavily away from ATM-based routers into IP-based routers. This would be beneficial to Juniper as long as the current ATM-to-IP trend continues.
SBC: Session border controllers (SBCs) are router-like pieces of hardware used specifically for VoIP applications. SBCs are used to control calls entering a network. As VoIP becomes more popular, the market for SBCs could expand, but Juniper has exited this market entirely, which could prove to be a competitive disadvantage later.
3G:The expansion of third generation wireless technology is also connected to the expansion of IP/PON because faster wireless transmission speeds need faster wireline networks to maintain overall network speed. Thus, potential growth or decline in the broadband wireless market could affect the market for Juniper's routers.
Ethernet is the most common LAN technology. For a while, Juniper's routers were not ethernet compatible, and Cisco's CRS-1 router, which was ethernet compatible, stole a significant portion of the router market from Juniper, as did the entry of Alcatel-Lucent with its own ethernet-compatible routers. Recently, new ethernet card updates as well as new routers with ethernet inputs are allowing Juniper to enter a large market they had previously been left out of. If ethernet remains the dominant LAN type, Juniper's recent entry into the market could prove to be a major competitive advantage, though they may first have to struggle to get customers away from Cisco and Alcatel-Lucent. Routers are integral parts of modern networks, and security hardware is becoming more and more important, meaning that as long as Juniper keeps its routers and service hardware competitive (as it has by adding ethernet capability), it is well posed to grow as fast as the market.
Juniper's products are not sold to a general market; much of its revenue is concentrated between the small number of telecom service providers and equipment vendors that dominate the global market. Service providers typically have the most visibility into market swings since they own relationships with end consumers; market trends can lead to unpredictable and volatile cycles for equipment vendors such as Juniper.
On the flip side of this issue is that any new deals from new or existing customers have the potential to bring in outsized revenue streams. For instance, Google (GOOG)--which bought Juniper equipment previously--is likely to purchase additional routers and security equipment from Juniper in 2007. Juniper enjoys a a good deal of customer lock-in because of the nature of the business.
The telecom industry is increasingly consolidating, as the merger of Alcatel and Lucent, Nokia and Siemens, and the acquisition of Redback by Ericsson have created bigger, more concentrated threats towards Juniper's competitive position. If the company moves with this trend, it could increasingly pursue its own acquisition strategy or be swallowed into a larger company such as Alcatel-Lucent or Ericsson.