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Juniper Networks (JNPR) |
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WIKI ANALYSIS
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.
Company Overview
Juniper Networks deals in infrastructure equipment and security services for the telecommunications industry and generated revenues of $3.32 billion in 2009.[1] 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.[2]
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Business Segments
Juniper Networks breaks its business down into two reportable segments: i) Infrastructure, and ii) Service Layer Technology (SLT).
Infrastructure (73% of Juniper's 2009 revenue[3])
Telecom infrastructure consists of the core wiring and routing that gives a network the ability to transport information (data, voice, video) from one place to another. Juniper is heavily involved in routing solutions.
- Core Routers: A local area network (LAN) consists of a relatively small number of computers that are connected in a way to facilitate the movement of data between them. A core router is the type of router that takes data sent from one computer and routes it to another within the network. Core routers are also used to connect the more powerful computers that make up the "backbone" of a larger, multi-LAN network. Juniper's core routers are their T-series and M-series.
- Edge Routers: Most service carriers have a massive network consisting of smaller networks networked together; for instance, cities have small cellular networks in the grander national or world network. When information is sent out of a small network, an edge router is used to reroute that data, voice, or video to the backbone network, and then from the backbone to whatever network the data is headed for. Juniper's edge routers are their E-series and M-series.
- Enterprise: Business networks tend to need more features (e.g., network security) than normal edge routers can offer. Service routers have additional control and security features to protect data being sent from network to network and computer to computer. Juniper produces the J-Series line of service routers.
- Ethernet: Ethernet is the most prolific type of local area network. There are four main kinds of ethernet cabling, each allowing for faster and faster speeds, but a computer and/or router needs to have a special type of input to accept ethernet cables. Until very recently, Juniper's routers did not support ethernet, but the new MX-series of routers, as well as new models of their core, edge, and enterprise routers, do.
Service Layer Technology (27%[3])
Service layer technologies provide better control and security to networks.
- SSL VPN: A virtual private network (VPN) is a private database that can be accessed through the public Internet; the data on the VPN is kept private via a number of security features. An SSL VPN can be accessed over any Internet browser. Juniper produces secure access hardware to protect the data on an SSL VPN from unwanted entry.
- Security: Security applicances like firewalls and intrusion detectors are meant to keep unwanted programs and people out of secure files. Juniper supplies a number of security hardwares, specially designed for home and office use.
Trends and Forces
Juniper's products are used by high-growth companies
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 YouTube effect
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).
IP/PON
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
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.
Service Carrier Demand for New Equipment
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.
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Acquisitions
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.
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