Core Routers to Drive Growth for Juniper in 2010

Includes: CSCO, JNPR
by: Trefis

Juniper (NYSE:JNPR), a network equipment maker which competes primarily with Cisco (NASDAQ:CSCO), is witnessing growth in the core router market. Juniper recently released its first quarter 2010 earnings, and reported a significant growth in revenues and improvement in margins over last year (see conference call transcript here).

We have updated Trefis price estimate for Juniper from $22 to $23, based on the positive trend in Juniper’s core router business.

We estimate that Juniper’s total router business, which includes core routers, constitutes about 38% of the $23 Trefis price estimate for Juniper’s stock. Core routers account for more than 40% of the estimated $1.6 billion router revenues for Juniper.

We believe that Juniper will benefit from two trends: (1) a growing core router market (2) higher Juniper market share.

1. Growing Core Router Market

As the volume of data transferred around the globe continues to increase, demand for high performance network equipment is increasing. Higher spending by service providers (AT&T (NYSE:T), Verizon (NYSE:VZ)) is expected to resume after the decline in 2009. Content service providers have also resumed investments in upgrading and expanding their networks and infrastructure. These trends are likely to benefit Juniper’s sale of core routers.

You can modify the forecast below to see the impact on Juniper’s stock if the core router market were to grow faster than we estimate.

2. New Juniper Core Router System Will Help Market Share

We estimate that Juniper’s share of the core router market has fallen from about 30% in 2005 to about 25% in 2009, but this trend will be reversed over our forecast period due, in part, to the success of Juniper’s new TX Matrix Plus core routing system.

Juniper has secured five new customer wins in the recent quarter for the TX Matrix Plus core routing system. This new system allows for virtualization of routing systems meaning that a single router can be partitioned to behave like multiple routers.

This is desirable for network operators who want to create custom router settings without multiple pieces of hardware. For example, a virtualized router may be used to route data for a specific application used by customers while other virtualized routers, all hosted on the same physical router, are used for other services.

We believe that the advantages of Juniper’s TX Matrix Plus router will help the company gain market share in 2010.

You can modify the forecast above to see the impact on Juniper’s stock if it were to gain more core router market share than we estimate.

Disclosure: No positions

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