A Look at How Cisco's Competitors are Faring

|
Includes: CSCO, FDRY, FFIV, JNPR, NOK, NT
by: Sramana Mitra

In my earlier series on Online Video Beneficiaries, I covered Cisco (NASDAQ:CSCO) and its “seven dwarf” competitors. Let us take a look at how Juniper, F5, Foundry, Alcatel, and Nortel have fared since then. [3Com (COMS) is being taken private, and Extreme (NASDAQ:EXTR), we think, is not going anywhere.]

On October 23, Juniper Networks, Inc. (NASDAQ: JNPR) reported its Q3 2007 results. Net revenues were $735.0 million, up 28% y-o-y and 10.5% sequentially. GAAP net income was $85.1 million or $0.15 per share. Its growth is supported by its strong partnerships with Ericsson and Alcatel-Lucent who performed well and increased their revenue contribution in the quarter.

Segment-wise, Infrastructure products had revenue of $464.7 million, up 34.5% y-o-y driven by strong growth in the T series core routers. Service Layer Technology products revenue was $142.1 million, up 16.8% y-o-y. Total services revenue was $128.3 million, up 20.6% y-o-y.

In the quarter, Juniper appointed Robyn Denholm from Sun Microsystems (JAVA) as CFO; Mark Bauhaus, also from Sun, as executive vice president and general manager of the Service Layer Technology Business Group; Penny Wilson, from Macromedia (OTCPK:MACR), as chief marketing officer; and Haley Tabor, from Computer Associates (NASDAQ:CA), as vice president, U.S. Enterprise sales.

For Q4, Juniper expects total revenues to be in the range of $770 million to $790 million, increasing its forecast range for the full year in the range of $2.79 billion to $2.81 billion. Its stock is trading around $31 after hitting a 52-week high of $37.95 on October 9, and its market cap is around $16 billion. This is probably my favorite among the dwarfs.

click to enlarge

On October 24, F5 Networks, Inc. (NASDAQ: FFIV), announced its Q4 2007 results. Its revenue was $145.6 million, up 10% sequentially and 30% y-o-y, and its net income was $12.9 million ($0.15 per diluted share), down 41% sequentially and 27.5% y-o-y. For fiscal 2007, revenue was $525.7 million, up 33%, net income was $77.0 million ($0.90 per diluted share), up 17%. Its core Big-IP business had revenue of $132.5 million, and its security revenue was $9.6 million, including $2.6 million from Application Security Manager and $6.9 million from FirePass. WAN optimization and acceleration revenue was $2 million.

F5 has partnerships with the large application solution vendors including Microsoft (NASDAQ:MSFT), SAP (NYSE:SAP), and Oracle (NASDAQ:ORCL). For Q1 2008, F5’s revenue target is $154 million to $156 million. Diluted EPS is expected to be $0.20 to $0.21. Reflecting lower gross margins for Acopia, it expects overall gross margins in the range of 76% to 77%. Its stock is trading around $28 after hitting a 52-week low of $25.91 on November 29. It's market cap is around $2.4 billion.

click to enlarge

On October 25, Foundry Networks™, Inc. (Nasdaq: FDRY), announced financial results for Q3 2007. Revenue was $159.5 million, up 34.2% y-o-y and 11.3% sequentially. Net income was $27.6 million ($0.18 per diluted share), compared to net income of $12.2 million ($0.08 per diluted share) in Q3 2006, and $15.6 million ($0.10 per diluted share) in Q2 2007. It bought back shares for $38 million in the quarter. In July, its board had authorized a share repurchase program to buy up to $200 million of its common stock.

Its service provider business was up 21% sequentially and 58% y-o-y. In both service provider and high end enterprise markets, its router revenue increased 41% sequentially and 178% y-o-y.

Its strategy of diversifying within its U.S. Federal business to branch on to new agencies is paying off. Federal revenues were up 115% sequentially. It is also focusing on its expanding service provider business.

Its stock is trading around $18 after hitting a 52-week high of $21.86, and its market cap is around $2.75 billion. Foundry is my other favorite among the dwarfs.

click to enlarge

On October 31, Alcatel-Lucent (Euronext Paris and NYSE: ALU) posted its Q3 2007 results and also announced a 3-part plan that is expected to result in incremental savings of € 400 million in gross margin and operating expenses by the end of 2009. The plan looks at streamlining the core carrier business with increased portfolio focus on IP transformation of wireline and wireless networks. The plan also aims to develop an offensive strategy on strong growth sectors, namely high value added services and applications for the carrier markets as well as solutions for the enterprise markets and Industry and Public Sector. The plan also looks at simplifying and streamlining the organization. As part of this plan, Wireline, Wireless and Convergence business groups have been reorganized into a new Carrier business segment.

Revenues for Q3 were € 4.35 billion, up 2.3% sequentially and down 7.8 % y-o-y. Adjusted net loss was €258 million (€ 0.11 per diluted share). Segment-wise, Carrier Business Segment had revenue of €3,142million, down 15% y-o-y and up 1.2% q-o-q. Wireline revenues at €1,520 million increased 8% y-o-y and 2% q-o-q; Wireless at €1,276 million declined 20% y-o-y and increased 4% q-o-q; and Convergence at €346 million declined 39% y-o-y and 3% q-o-q.

Its Enterprise Segment revenue was 380 million, up 8% y-o-y and 2% q-o-q. Services Business Segment revenue was €777 million, up 3% y-o-y and 4% q-o-q.

Its stock is trading around $8 after hitting a 52-week low of $7.28 on November 21, and its market cap is around $18.25 billion.

click to enlarge

Nortel (NYSE: NT) shares soared 18% after it posted its Q3 results on November 6. Revenue was $2.70 billion, down 8% y-o-y and up 6% sequentially. Its net earnings were $27 million, or $0.05 per common share on a diluted basis, up 171% sequentially and 142% y-o-y. Its gross margin was 43.0% of revenue, compared to 38.4% in Q3 2006 and 41.1% in Q2 2007.

Segment-wise, Carrier Networks (NYSEARCA:CN) had revenue of $1,080 million, down 19% y-o-y and up 2% sequentially. LG Nortel joint venture contributed significantly to the revenue but revenues were affected by the UMTS Access divestiture, the transition of a CDMA manufacturing centre and decreases in legacy products.

Enterprise Solutions (NYSE:ES) posted revenue of $671 million, up 18% y-o-y and 14% sequentially. Global Services (NYSE:GS) revenue was $540 million, essentially flat compared to Q3 2006 and up 9% sequentially. Metro Ethernet Networks (NYSE:MEN) revenue was $360 million, down 13% y-o-y and 1% sequentially.

Nortel’s Innovative Communications Alliance [ICA] with Microsoft has got it more than 300 wins that equate to over 900,000 licenses for its unified communications solution. It has also roped in Dell (NASDAQ:DELL) to become a key sales channel for Nortel’s entire Enterprise portfolio, and some Services offerings. Nortel has also dealt with its accounting scandal. In October, it agreed to pay SEC a penalty of $35 million. It also made quite a few changes in its senior management: Pavi Binning will be the new CFO; Joel Hackney, the new President of Enterprise Services; and Joe Flanagan, the Senior VP of Global Operations.

Its stock is trading around $17 after hitting a 52-week low of $15.80 on September 24. Its market cap is around $7.5 billion.

click to enlarge