Juniper (NYSE:JNPR) reported earnings last month and based on continued strong performance in routers and switches, we have raised our price estimate to just under $37 . Our price estimate now stands around 5% below the market price. While business is improving, the company also faces uncertainty related to Japan, which we discuss below in relation to the switch market that makes up 21% of our price estimate. Juniper competes with Cisco ( CSCO ), HP (NYSE:HPQ), Alcatel-Lucent ( ALU ) and Huawei-3Com in the network equipment business.
Mild Business Uncertainty Due to Japan Disaster
During the latest earnings announcement, Juniper's management stated that Japan accounts for about 5-8% of company's overall revenues. The company acknowledged the risk of a drop in Japanese demand saying, "… there is some level of uncertainty in the demand environment in Japan over the next couple of quarters, and we've calibrated the potential risk to our business. " (( Juniper's Q1 2011 Earnings Transcript , SeekingAlpha))
So how significant is the risk for Juniper?
On a relative basis it seems that the risk is more than what Cisco faces. We previously wrote an article (see article Cisco Resilient to Japan Disaster ) where we stated that Cisco's 3% revenues are attributed to Japan. This implies that Juniper has 2 or 3x more exposure to Japan than Cisco does on a relative basis.
In addition to the risk that existing revenues might drop, the uncertainty in Japan also limits the potential for growth in this market for the near-term at least.
In Q3 2010, Japan's switching market grew by 30% making it one of the fastest growing markets globally, and the slowdown could impact our anticipated growth rates for the router and switching market and weigh on our growth forecasts.
You can modify the chart above to see how changes in bottom layer switch market share impacts our price estimate.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.