How Can Juniper Curb The Declines In Its Router Market Share?

Juniper Networks‘ (NYSE:JNPR) share in the edge and core router markets has declined consistently over the past several years due to Cisco‘s (NASDAQ:CSCO) introduction of new product lines and Alcatel Lucent’s big market share gains. However, there are a few factors that can help the company arrest the declines in its router market share to an extent. On the service provider front, increased spending on networks – with the development of new technologies and growing demand for high-speed video content – presents a lucrative opportunity for Juniper. In the enterprise space, rising demand for wireless networks and Juniper’s renewed focus on WLAN can support its routing and switching sales.

We currently estimate Juniper’s share in edge routers to decline from nearly 16% in 2014 to around 11% over the next seven years. For core routers, we project the company’s share in the market to shrink to 22% in the long run from 25% in 2014. However, if Juniper makes the most of the aforementioned opportunities by developing relevant products, it can diminish the intensity of its market share decline. If Juniper’s long term share in edge and core router markets falls only to 13.5% and 24%, respectively, there can be an upside of over 5% to our price estimate for the company.

Our $28 price estimate for Juniper is over 10% ahead of the current market price.

See our full analysis of Juniper Networks

Service Provider – Increased Spending On Networks

Macroeconomic concerns over the last few years caused project cycles to lengthen and extended delivery timelines from customers. With macroeconomic uncertainty subsiding somewhat, service providers have started investing more heavily in their network infrastructure. Moreover, the sustained high demand for data due to the proliferation of mobile devices and high-quality video content on the web has ensured consistent capital spending on networks. While sluggish demand from U.S. carriers put pressure on Juniper’s edge and core router sales last year, the company’s management expects demand to rebound in the second half of this year, which should ramp up sales across segments, including routing.

The spike in demand is likely to be driven by carriers’ efforts to put their newly licensed wireless spectrum to use. The Federal Communications Commission (FCC) auctioned about 1,600 licenses as part of its AWS-3 auction in January this year, which generated a record breaking $41.3 billion in revenue for the U.S. government. Verizon (NYSE: VZ) and AT&T (NYSE: T) emerged as the top players in the auction with about 70% of the winning bids between the two. Both wireless majors are Juniper’s clients in the U.S. Since service providers account for over two-thirds of Juniper’s revenues, an improvement in demand should have a notable impact on the company’s router market share.

Enterprise – Focus On Wireless Networks

The importance of the wireless market for Juniper stems from the fact that demand for Wi-Fi connectivity in enterprises is growing rapidly. There has been a large influx of laptops, tablets and other Wi-Fi enabled devices and cloud applications by employees at workplaces, which requires relevant upgrades in network infrastructures. With growing pressure on bandwidth and Wi-Fi access points, enterprises need integrated, flexible and secure wired and wireless networks. For this purpose, they have to spend more on wireless and integrated network equipment. Gartner predicts that end-user spending on WLAN equipment will increase to $7.8 billion in 2019, from an estimated $5.3 billion in 2013. ^[1] This puts the growth in the wireless market at a CAGR (compound annual growth rate) of 7%.

While Cisco has a much stronger presence in the WLAN space, Juniper can fend off competition to an extent by providing cheaper and effective alternatives. Juniper introduced its WLAN compatible extensions for E-series broadband remote access routers and SDX-300 network operations software in 2003. ^[2] In 2014, it struck a deal with Aruba Networks, to deliver open, converged wired and wireless network solutions to enterprise customers. The company allowed Aruba to leverage its programmable silicon by providing new programmable application programming interfaces (APIs) to enable High IQ enterprise networks. ^[3] Earlier this year, Juniper partnered with Ruckus, combining its EX-series Ethernet Switches and Ruckus ZoneFlex access points and SmartZone (SZ) Wi-Fi management platform, to enable easy expansion. Ruckus’s wireless 3+1 SmartZone clustering and Juniper’s Virtual Chassis technology reduce the number of wired and wireless devices needed for automation, simultaneously ensuring maximum availability.

By providing complete networking solutions for WLAN, Juniper can bolster its routing and switching sales, which should eventually have a positive impact on its share in the market. However, the impact will likely be minor considering that enterprise customers account for less than one-third of Juniper’s revenues and Cisco is better established in the WLAN space.

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1. Juniper Networks and Ruckus Wireless Team to Bring High-Performance, Scalable and Open Network Solutions to the Enterprise, Juniper, Jun 23 2015 [↩]
2. Juniper goes for wireless LAN sweet spot, The Register, Feb 27 2003 [↩]
3. Juniper Networks and Aruba Networks Partner to Deliver an Open, Converged High-IQ Enterprise Network, Juniper, Jun 4 2014 [↩]