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Downgrade on Cisco rival shows warts

Goldman Sachs says "sell" Juniper stock based on routing, switching and security challenges

By Jim Duffy on Tue, 03/19/13 - 8:51pm.

Goldman Sachs' downgrading of Juniper's stock this week indicates the myriad challenges facing the company in all of its key markets. The investment firm downgraded Juniper to a Sell from Neutral and lowered its price to $17 from $21 based on concerns in three of its major markets: service provider routing, enterprise and data center switching, and security.

In service provider routing, Goldman expects Juniper to be challenged by Alcatel-Lucent and its recent re-entry into core routing. The firm expects ALU's 7950 to impact Juniper's market share, and price and profit margins on its own core offerings.

Juniper and ALU have been trading the No. 2 spot in service provider edge routers for years behind Cisco. ALU is solidly No. 2 right now, with a 26% share of the $1.8 billion edge router market in Q4, 2012, compared to Juniper's 18% share, according to Dell'Oro Group.

[DEVIL IN THE DETAILS: Cisco vs. Juniper: How different are their SDN strategies?]

In core routing, Juniper is No. 2 to Cisco, followed by Huawei. But Juniper is vulnerable given that the core router market just experienced its fifth consecutive quarter of declines, according to Dell'Oro, and Juniper is undergoing a product transition to its T4000 router and PTX transport switch.

A Mini-Me of the PTX was just introduced by Juniper this week.

Goldman Sachs also expects Juniper's share of the switching market to flatten with the introduction of Cisco's Nexus 6000 and the "disruption" of software-defined networking. The Nexus 6000 is a low-latency 10G/40G switch