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Is Cisco (CSCO) Really Taking Router Market Share From Juniper (JNPR)?

 February 09, 2012 10:20 AM

Networking equipment maker Cisco Systems, Inc. (NASDAQ:CSCO) claims they are taking routing market share from Juniper Networks Inc. (NASDAQ:JNPR), their largest routing competitor.

Indeed, Juniper's router product sales declined 21 percent in their calendar fourth-quarter. By contrast, Cisco's high-end routing grew 11 percent sequentially.

But, Jefferies analysts expressed their skepticism over Cisco's claims and said it's possible that much of the differential in growth rates comes from variability in the growth rates of the customers.

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"We suspect that any share shifts would have come from core routers, as Juniper's MX-series edge routers grew 9 percent Y/Y in Q4, roughly in-line with Cisco's overall router growth. Having stated that, we're hesitant to conclude that Juniper is truly losing Core IP router market share in the strict sense of the term," analyst George Notter wrote in a note to clients.

Most often, in the core routing space, market share shifts have occurred as a certain vendor's customers – in aggregate – grow faster than another vendors' customers. In other words, the lumpiness of major customers' projects can cause shifts in market share. This runs in contrast with situations where a vendor has convinced a carrier to stop buying another vendor's products -- thereby inserting their own core router products.

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The analyst said historically, it's been very difficult for carriers to substitute one vendor's core router for another's. AT&T, Inc. (NYSE:T), for example, sources Juniper T-series in its International network core while they source Cisco Carrier Routing System (CRS) in their domestic network core.

"It's very possible, even likely, in our view that much of the differential in router growth rates between Juniper and Cisco is coming from variability in the growth rates of the customers," Notter said.

Cisco's core router market share in the third quarter of 2011 was 57.6 percent and the market share ranged between 52.5 percent and 58.9 percent during the first quarter 2010 and the third quarter 2011, according to Infonetics.

On the other hand, Juniper's third quarter share was 27.8 percent with a range of 26.0 percent to 30.3 percent share during the first quarter 2010 and the third quarter 2011. The data shows, that historically, market share has been fairly static and the analyst noted that market share in the core has changed hands during major technology transitions.

"In total, it's a bit hard for us to tell if Cisco is gaining real market share (in the strict sense) or if they're over-selling the share gain story here. We suspect the latter case is more accurate," said Notter, who has a "hold' rating on Cisco shares.

Meanwhile, Cisco reported better-than-expected profit and sales for the second quarter, helped by higher revenues and cost controls. Net income increased to $2.2 billion, or 40 cents a share, from $1.5 billion, or 27 cents a share, last year. Excluding items, the company earned 47 cents a share. Quarterly revenue rose 11 percent to $11.5 billion. Wall Street had expected earnings of 43 cents a share on revenue of $11.23 billion, according to analysts polled by Thomson Reuters.

Shares of California-based Cisco closed Wednesday's regular trading session at $20.43. Analyst Notter has a price target of $18.

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