PTX: Double-Edged Sword for Juniper - Analyst Blog


The core routing market has been a headache for Juniper Networks ( JNPR ) in recent times, given extreme sluggishness in demand (particularly in the U.S.). To make matters worse, competing products have made it to the market with aggressive pricing strategies chipping away at its market share.

Juniper's answer was its PTX supercore switch, which is priced lower than some of its offerings for the core routing segment. Based on its patented Express chipset, this packet transport switch helps simplify the network, thereby making it denser and more scalable, at the same time optimizing costs.

Juniper is recommending its PTX switches with its T-series core router, which in combination is expected to modernize the network, making it suitable for cloud-delivered services and bandwidth-intensive applications. We believe that this product line will do extremely well in the second half of the year, as carrier spending improves, with incremental revenues for Juniper.

There is a downside, however. PTX will cannibalize some of its existing higher-margin products and will therefore have a negative impact on its margins. However, we think this is preferable to market share losses, so we believe it is a positive longer-term.  

Juniper faces stiff competition in each of its market segments, especially from industry leader Cisco Systems ( CSCO ), which usually launches innovative products and charges higher prices for these premium products. Cisco is very well positioned at the Edge and we wouldn't be surprised to see Juniper losing some market share in this area.  

In addition, Juniper faces competition from Alcatel-Lucent, Ericsson, Extreme Networks, Inc., as they are also launching competitive products in the market.

New product and technology launches have always been a focus area for Juniper. Apart from traditional networking products and related services, the company has ventured into the security software segment to diversify its business model and add new revenue streams. The acquisition of Myconos Security reflects this strategy of the company, as it will fight against hackers and help the company expand in the security segment.

However, Juniper's investment in new products and platforms are expected to tell on its margins.

Therefore, despite Juniper's strong product line up and continuous deal wins, the company reported mediocre first quarter 2012 results, which missed the Zacks Consensus Estimate. Moreover, stiff competition from industry stalwarts such as Cisco and Hewlett-Packard Company ( HPQ ), as well as Juniper's European exposure could weigh on the stock.

Currently, Juniper has a Zacks Rank of #3, implying a short-term Hold rating.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CSCO , HPQ , JNPR

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