Juniper feels growing pains

Cisco rival struggles with enterprise, slowing growth in core routing

Juniper Networks is at a crossroads.

The 11-year-old company, formed to challenge Cisco in service provider core routing, is facing slowing growth in that market (The company is announcing a new core router Monday that it hopes will boost sales.)

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Juniper Networks is at a crossroads.

The 11-year-old company, formed to challenge Cisco in service provider core routing, is facing slowing growth in that market (The company is announcing a new core router Monday that it hopes will boost sales.)

Its entry three years ago into the enterprise market – also a Cisco stronghold -- has yet to result in profits after an investment of at least $5 billion acquiring several smaller companies. Continued sales and marketing and R&D investment in enterprise network technology is dragging down Juniper’s overall profits, analysts note.

Fortunes are brighter in service provider edge routing, where Juniper is regaining some market share after five consecutive quarters of losses. The company’s share in edge routing fell from 24% in the third quarter of 2005 to 14% in the fourth quarter of 2006, but has climbed back to 18% in the first quarter of this year, according to Dell’Oro Group.

A stock option backdating situation and the recent exodus of several top executives also downcast the company’s image, if not its momentum. Juniper is still without a CFO after losing Robert Dykes to an ad monetizing start-up in mid-March.

The company has completed options backdating investigations – it was one of 80 to 100 companies ensnared in that dragnet – but it cost Juniper $900 million in charges and the restatement of several quarters of earnings.

And just last week, UBS Warburg downgraded Juniper stock based on its ballooning valuation.

Overall, the company is growing – at $2.7 billion, 2007 revenue expectations are 17% better than last year’s; but clearly, Juniper is experiencing growing pains, too.

“The company has grown up very rapidly in terms of revenue, but in a number of other areas we’re not as effective as we could be or want to be at this scale,” says Juniper COO Stephen Elop, who took on the newly created position five months ago. Elop came to Juniper from software developer Adobe Systems, where he was president of worldwide field operations.

“Juniper’s challenge (is) too many rabbits to chase with too few resources available,” states CIBC World Markets analyst Ittai Kidron in a recent bulletin on the company’s first quarter.

One of Juniper’s challenges is in building awareness of the company’s strengths and quality of products, Elop says. Another is the ease with which companies can do business with Juniper – he says Juniper could improve its customer relations and transactions.

“It’s that class of things, that need to focus on execution that is very much at the heart of the opportunity that exists to take Juniper to that next level,” Elop says. “That’s why I was hired into the company, why this role was re-established.”

Elop says he was attracted to Juniper for its innovation, competitive passion and fire, and its ability to gain an “unfair share” over competitors of the markets in which it competes. Right now, however, the enterprise market may be unfair to Juniper.