Juniper's (
JNPR
) share in bottom layer switches, the most common type of switch
that addresses layers 2-3 of network architecture, has increased
from an estimated 1% in 2005 to 4% in 2009. We anticipate a more
moderate pace of growth in the years ahead, as the network switches
market is close to saturation and Cisco (
CSCO
) continues to dominated this segment with 55-60% share. While
Juniper is a relatively new entrant, it also faces competition from
mid-rung players like Tellabs (
TLAB
) and Alcatel-lucent (
ALU
).
While we expect Juniper's share in bottom layer switches to
remain under 6% through our forecast period, the Trefis community
projects that this number could continue its recent growth pace and
breach 8%. The community forecast implies nearly 10% upside to our
price estimate for Juniper stock.
While this upside potential is encouraging, we note that
our base price estimate of $27.76 for Juniper
stock
stands well below market price.
Network Switches Market is Becoming Saturated
The network switches market is relatively mature and close to
saturation. Most of its growth is driven by replacements and
upgrades, rather than new customers entering the market or existing
customers expanding usage. Further, there are limits to technical
innovations in bottom layer switching and most of the upgrades
center on an increase in processing speeds. As a result,
competition is intense with a number of players fighting for a
limited customer base. The market is extremely crowded with the
likes of Alcatel-Lucent, Huawei-3Com and HP among others vying for
the same opportunities.
Cisco's Formidable Position in Switches Market
Cisco has consistently maintained a market share of 55-60% in
the bottom layer switch market through strong relationships with
most of its customers. Cisco has grown so widely that its brand is
almost considered to be synonymous with switches. This makes it
tough for any competitor to break into Cisco's market unless it
comes up with a vastly superior product or collaborates with other
companies.
For example, to counter Cisco's move into the server space, IBM
recently announced that it will be selling Juniper's network
switches and routers under its brand name to complement IBM servers
in data centers. Since data centers are one of the fastest growing
business segments for the networking business, any push here is
likely to boost Juniper's market share.
Trefis Community Forecast
The Trefis community forecasts that Juniper's share in bottom
layer network switches will grow from 2009 levels of 4% to beyond
8% by the end of our forecast period. This marks notable upside to
our base estimate that market share will remain below 6%. The
member estimates imply an upside of nearly 10% to
our $27.76 price estimate for Juniper stock
. However, we note that this scenario would still leave our number
well below the current market price.
Drag the trend line in the modifiable chart above to see how
various bottom layer switch market share scenarios could affect
Juniper's stock value.
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Our
complete analysis for Juniper's stock is here
.