Investment firm downgrades its, and Juniper's stock; cites preoccupation with restructuring, Juniper's slow switching sales
First, it was distracted by entering too many new markets. Now it’s distracted by exiting them.
Cisco stock, as well as Juniper’s, was downgraded this week by RBC Capital Markets. Cisco is preoccupied with its reorganization, while Juniper is suffering from sluggish demand for its switches, the firm notes.
RBC downgraded Cisco to “underperform,” believing the company is concentrating more on reorganization, and less on reclaiming lost market share or developing new products. RBC believes the reorganization process may be distracting the company from addressing other issues, such as increasing competition and investing in R&D:
The root cause of many of the challenges facing Cisco today were driving towards an unrealistic growth target of 12-17%, assuming a layered bureaucratic structure, and moving into the entrenched server market.
RBC believes Cisco’s move into the server market may have been a mistake. In addition to alienating titans, and onetime partners HP, IBM and Dell, Cisco may have left its $14 billion switching business unguarded, and vulnerable.
Cisco lost share in switching in Q1, and its margins are being hit by a troublesome product transition.
Switching isn’t paying off very handsomely for Juniper either. RBC downgraded Juniper to “sector perform” due to slowing demand for switching and security products from increasing competition.
For the first time last quarter, Juniper’s popular EX series saw a sequential revenue decline at -18% (still +30% YoY) with some thoughts of a product transition pointing to the drop.
Juniper switch sales may be reinvigorated though by shipment of the QFabric line later this year. And anticipation for QFabric may be the reason why EX sales are falling short…
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