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Wednesday, August 09, 2006

Doesn't Juniper Compete With Cisco?

Stocks: (CSCO)(JNPR)

Juniper's stock jumped 5% on Cisco's strong earnings. But, doesn't Juniper compete with Cisco? Isn't is possible that part of Cisco's success is taking share from its rivals.

In Morningstar's analysis of the Cisco numbers, the research firm made a point of saying that Cisco's move beyond switching and routing and into storage, wireless networking and VoIP was bad news for the competition. The analysis further makes the point that Cisco's leverage with its suppliers and its hige R&D budget was not good for companies like Juniper, Nortel, and Lucent.

Even with the 5% increase in its shares, Juniper still trades near its 52-week low of $12.80, about half of the 12-month high of $24.68. Juniper's shares change hands at $13.56.

In contrast to Cisco's profit machine and nearly $8 billion a quarter in revenue, Juniper is having a rough time. According to Forbes: "Prudential Equity Group Research lowered 2006 revenue and earnings-per-share estimates on Juniper Networks after the company reported preliminary second-quarter results." Baird and Citi also recently downgraded the stock.

Juniper could not release complete numbers for its last quarter due to a probe of its options grant practices. What the company did say was that revenue for the quarter ending June 30 was $568 million. The March quarter was $567 million. And, the quarter ending December 31 revenue was $575 million. Operating income in March was $91 million down from the three immediately previous quarters.

Management at Juniper is likely to be distracted by the options dating issue, and some of the management may even have to leave. We are talking about a company that has alreadu had its share of mangement gaps. That issue is unclear.

What is abundantly clear is that a 5% increase in Juniper's share price based on Cisco's results is an investment misplaced.

There are two companies that often get tied to directly to Cisco . Clestica (CLS) is the EMS (electronics manufacturing services) company that manufactures many of the router components and other products for the company. Not surprisingly, CLS is up 4.4% to $9.92 on the day. Cypress Semi (CY) supplies many of the chips, and its shares are up over 2% to $15.41 on the day.

After the strong results, it is of little surprise that CSCO is trading up over 15% to $19.92. This is far greater than the options traders were expecting, and the analysts have essentially all been out with positive calls today.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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