Juniper Networks (NYSE:JNPR) and Cisco Systems (NASDAQ:CSCO) are engaged in a turf war in the network equipment space. As far as stock market returns are concerned, Cisco is leading Juniper by delivering gains of 16% this year. Juniper itself hasn't done too shabbily either, having gained almost 7% in 2014. But, in the long run, there is a solid chance that Juniper may overtake Cisco. Let's see why.
Juniper is focusing on enlarging its portfolio by releasing new products and discarding the underperforming ones. Thus, I can say that Juniper has set its principles to build a solid foundation for the future. Casting aside the setback due to an erratic show in the previous quarter, Juniper is making a comeback.
The company is counting on product launches, cost reduction initiatives, improved execution and innovations to drive growth. Juniper expects growth in the segments of SDN (software defined network) and NFV (network function virtualization). Strong demand for smartphones and tablets throughout the world has led to a hike in data usage and consumption. Thus, Juniper is poised to enhance its sales as data traffic grows. SDN system sales will also shoot up to $15.6 billion by 2018, opening up another market for Juniper.
The arrival of MX104 should also add to Juniper's prospects. Juniper has won a number of design wins in stores from top customers and service providers. It has removed the MobileNext suite of products from its portfolio due to its diminishing share in the market. To retain the value and diversification of its portfolio, it is launching various switching products, including the QFX5100 switch, hoping that it will bring success to the company.
Juniper continues to work its way into the data centers via its switch families. By 2017, Juniper expects an upswing in the demand and sales of routers and switches by approximately 9%. The concept of One Juniper will help it in cloud environment building. This restructuring involves 6% personnel and R&D cost reduction.
Key partnerships will drive growth
The company has been selected by AT&T (NYSE:T) to supply their Domain 2.0 vision for a user-defined and efficient cloud solution. Also, there has been an ever rising demand for Web 2.0, cable and carriers from top enterprise areas.
Juniper's objective is to reap long-term gains by spending only on product development schemes. The adoption of software defined networks by Juniper is turning out to be profitable.
Also, last month, Cantor Fitzgerald analyst Brian J. White reiterated a Buy rating on Juniper Networks with a price target of $32. He said:
"After starting the year on a strong note, Juniper's stock peaked the day after (1/24/14) the company announced its intention to unveil details around its IOP. In fact, the stock is now trading below the closing price the day that Elliot Management filed a Schedule 13D. Although Juniper's stock appears to have fallen victim to a "sell on the news" pattern; we believe Juniper's IOP plan has longer-term implications and provides the company with wiggle room around EPS over the next 12-18 months. Also, Juniper's first dividend ($0.10 per quarter) commences in 3Q:14."
"We have also noticed a growing concern in recent weeks around the impact of service provider consolidation trends on capital spending this year, especially in North America. Although we acknowledge there is the potential for a modest headwind from consolidation activities, and there are some data points to support this concern; we have noticed more data points that support constructive global spending trends and thus we do not expect this consolidation to be a "deal killer" for Juniper. We would also point out that Juniper is focused on delivering "High-IQ Networks" and best-in-class "Cloud Builders," areas where we believe customers will focus their spending"
In addition, Juniper is also expected to benefit from the increasing 4G LTE deployment in the U.S.A. AT&T and Sprint are deploying their LTE networks at a very fast rate and the global LTE service revenue is expected to grow from $78 billion in 2013 to over $500 billion in 2018, symbolizing a CAGR of 46%.
As of now, only about 30% share of the U.S.A. cellular market and as the deployment increases, the capital investments will also increase and consequently Juniper will receive higher order.
Why Juniper is better than Cisco
Over the last few quarters, Juniper's router business has grown at a faster pace than Cisco's. In fact, Juniper has been gaining market share at the cost of Cisco and the router business now accounts for almost 50% of Juniper's revenue. That's not all, Cisco's revenues been declining across various segments, which is why I think Juniper is a better buy for now.
As I have already stated, I think Cisco has lost its way under chief executive John Chambers. Cisco's stock price has widely underperformed the industry over the last decade and I don't think it will change as long as John Chambers is the company's CEO. The rich dividend, which now has a yield of 3.1%, has supported Cisco's share or else it would've plummeted further.
Chambers has been Cisco's CEO for almost two decades now. However, I think the company needs a new leadership to propel future growth, which I don't think is going to happen anytime soon.
Internet of Things is certainly Cisco's best bet to sustain growth. The company recently acquired Tai-f Systems to boost its Internet of Things efforts, however Cisco's ROI on its acquisitions have been pretty poor. Cisco has failed to build up on high-profile acquisitions of Starent ($2.9B), Scientific Atlanta ($6.9B), and WebEx ($3.2B) etc. and obviously, Chambers is responsible for that.
I think it's about time Cisco freshens up its board of directors, thus, I think investors are better off betting their money on Juniper.
Hence, there's a strong possibility that Juniper might overtake Cisco. Its focus on product innovation and partnerships with key players will lead to strong performances in the long run, making it a solid bet.
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