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Investment Overview for Juniper (NYSE:JNPR)
Below are key drivers of Juniper's value that present opportunities for upside or downside to the current Trefis price estimate for Juniper:
Edge Router Market Share: We forecast Juniper's share in edge router market to decrease from an estimated 17% in 2012 to 15% by the end of our forecast period. However, there could be an upside of more than 8% to our price estimate if Juniper were to increase its share to 20% by end of our forecast period. Juniper will look to build on the continued success of its MX series of products in order to do this. On the other hand, there could be a minor downside of 4% if the market share were to decrease to around 12%.
Enterprise Router Market Share: We forecast Juniper's share in enterprise router market to increase from an estimated 6% in 2011 to about 7% by the end of our forecast period. Given its low share in this segment, Juniper has tremendous upside potential. There could be a potential upside of about 10% to our price estimate if Juniper was to increase its share to 25% by end of our forecast period.
Juniper Switches Market Share: This segment presents a tremendous upside opportunity for Juniper, over our current price estimate. The market size for the bottom layer switches is more than the combined size for routers (core, enterprise and edge) at an estimated $18 billion for 2012. Juniper currently has a low share here, at an estimated less than 3% for the year 2012. We currently forecast this share to increase to about 4.4% by end of our forecast period. However, there could be a potential upside of about 20% to our current price estimate if Juniper was to increase this share to 10% in stead, by end of our forecast period. The company has been successfully pushing into the switching market with its EX series switches. Its new QFabric data center offering is seeing some good initial traction, and so the switches business could catch some associated benefits if the data center offering takes off. On the flip side, if share stagnates around current levels, there could be a downside of about 6% to out price estimate for Juniper.
For additional details, select a driver above or select a division from the interactive Trefis split for Juniper at the top of the page.
Juniper Networks creates networking equipment such as switches and routers used primarily by businesses and Internet Service Providers to route IP data such as emails, videos, files and other digital communication. For example, an email that you send to a distant friend travels through various switches and routers made by companies like Juniper, Cisco and Alcatel-Lucent along the path to its destination.
Edge Routers, along with Core Routers, are used by Internet Service Providers to route data traffic from network to network. Juniper's share of the Edge Router market has declined from ~19% in 2008 to an expected 17% in 2012. The edge router market is almost two a half times the core router market and bigger than even the enterprise router market. We believe the Edge Router market will increase from around $6.7 billion in 2012 to become a $10 billion market by the end of our forecast period.
The ~$19 billion 2012 market for switches is almost 50% bigger than the corresponding router market. Juniper has been able to more than triple its switches market share from less than 1% in 2008 to an expected 2.7% in 2012. However, due to Cisco's entrenched position in the switching market, we do not believe Juniper will attain more than 4.5% market share in this space. Of the various kind of switches, bottom layer switches are the most prevalent types of switches found within networks and account for more than 90% of our market size estimates.
In addition to networking hardware, Juniper provides maintenance and support services to its customers to help them fix problems that occur with networking equipment. Juniper's network service revenues and profits are dependent on the installed base of Juniper switch and router equipment in use.
Juniper also provides its customers with security solutions that help protect networks from outside attacks. Network security equipment includes products such as Virtual Private Networks (VPNs) and firewalls. Juniper faces competition from the likes of Cisco, CheckPoint and IBM.
Escalating Mobile Data Traffic Driving Router and Switch Sales
A study released by Cisco (Juniper's primary competitor) in early 2012 estimated that global mobile data traffic had at least doubled each year for the last four years. Going forward, it expected to see the figure grow 18-fold between 2011 and 2016. Most of that rapid growth will be fueled by the burgeoning demand for video, which is expected to account for more than 70% of all mobile traffic by 2016.
Growing penetration of mobile devices such as smartphones and tablets is driving the demand for mobile data through the roof, causing wireless service providers to look for cost-effective ways to upgrade their networks in order to support and monetize the growing traffic. Juniper, which sees close to two-thirds of its revenues come from service providers, is positioned well with its strong service provider relationships to benefit from the growing demand for network equipment in the long term.
Alcatel Lucent's re-entry into core router space
Historically, Cisco and Juniper have had a virtually duopolistic control over the core router market, with a more than 80% combined market share at all times. However, that is now threatened by the re-entry of Alcatel Lucent in the core router space in 2012. Despite not having a core routing solution until now, Alcatel Lucent has steadily climbed the edge routing charts from being just an entrant in 2003 to surpassing Juniper as the number 2 vendor in the industry in 2009-10. With about 24% market share of the edge routing industry, Alcatel Lucent has done well to find a place in many networks and can now use that as a leverage to push its core routers as well.
Also, armed with an end-to-end solution, Alcatel Lucent can now compete with Juniper for many businesses in the edge routing industry that prefer such solutions, hurting Juniper's edge routing market share even further.
Hardware to software shift in networking
There is going to be an industry wide shift in demand from hardware networking solutions to software-based ones in the long run. This poses an interesting challenge to traditional hardware-based players such as Cisco and Juniper. VMware, for example, is a threat considering its virtualisation expertise and recent acquisition of Nicira, a software-based networking company. Cloud-computing solutions are also driving this trend. Cisco recently launched its own cloud-based routing and WAN optimization platform for the enterprise, called the Cisco Cloud Connected Solution to address the changing trend.
The Bring Your Own Device (BYOD) movement is causing corporates to increase their allocation of IT budgets towards enhancing network security. As employees bring their own mobile devices such as the iProducts as well as Android based smartphones and tablets to work, enterprises feel an increasing need to bolster their network security to effectively manage and support all devices while mitigating the threat of an outside attack. Addressing the BYOD movement presents Juniper with an opportunity to increase security revenue as well as improve the demand for its routing and switching solutions.
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How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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