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No. of Recommendations: 20
NGN IP – Juniper Networks (JNPR), www.juniper.net

“The highest-valuation Next Generation stock is not in optics, however. It's Juniper Networks, which, in our view, is fairly priced to under priced. We believe it has an extremely attractive market opportunity in core Internet routers and superb lock-in of its customers.” – Paul Johnson, co-author of “The Gorilla Game”
So why does Paul like Juniper Networks so much? This is what I aim to find out.
1)What does Juniper Networks do, and what role do they play in NGN IP?
From their website: “Juniper Networks provides high-performance IP networking systems that enable service providers to meet the demands of the rapidly growing Internet.” That really doesn't tell us much though. Juniper basically makes core Internet routers for Next Generation Networks. Some of their products are as follows (taken from their web site):
The Juniper Networks M20™, M40™, and M160™ Internet backbone routers represent an entirely new class of routers.

These purpose-built routers, used by the world's leading service providers, provide new IP infrastructure solutions for critical applications such as backbone bandwidth management, high-speed access, public and private peering, and content and Web hosting. They share common JUNOS™ software, common services, and common ASIC technology for full compatibility across all platforms. All systems are available with the new Internet Processor II™ ASIC and provide wire-rate performance to support value-added services during both normal and adverse network conditions. They also offer a rich set of tools for traffic engineering and for leveraging a common IP infrastructure for public and private services using Multiprotocol Label Switching (MPLS).

The M20 Internet backbone router delivers 40-Mpps route lookup performance with throughput rates of 20+ Gbps in a compact design for space- and power-constrained environments.

The M40 Internet backbone router, the first wire-rate OC-48c/STM-16 backbone router deployed in large service provider networks, delivers 40-Mpps route lookup performance with throughput rates of 40+ Gbps.

The M160 Internet backbone router delivers 160-Mpps route lookup performance with throughput rates of 160+ Gbps. The M160 platform is the first router to support 10-Gbps OC-192c/STM-64 circuits, greatly simplifying capacity planning and administration of rapidly growing networks.

For connectivity to a wide-variety of fiber optic and electrical transmission interfaces, Juniper Networks offers a flexible combination of interfaces with the highest port densities per rack inch on the market today.

The M20 and M40 routers offer a full range of interface support for ATM (OC-3/STM-1,OC-12/STM-4), Channelized OC-12 to DS-3, DS-3, E3, Fast Ethernet, Gigabit Ethernet, and SONET/SDH (OC-3/STM-1,OC-12c/STM-4, and OC-48c/STM-16).

The M160 router offers a full range of interface support for ATM (OC-3/STM-1, OC-12/STM-4),Channelized OC-12 to DS-3, Gigabit Ethernet, and SONET/SDH (OC-3/STM-1, OC-12c/STM-4, OC-48c/STM-16, and OC-192c/STM-64).

The JUNOS Internet software is designed to meet the requirements for IP network routing, operations, and control in the world's largest networks and is an integral component of the system architectures. The policy language provides a rich set of route filtering tools for flexible configurations, which you can safely deploy without affecting the live network.

2)What kind of competitive advantage/strategic partnerships does Juniper hold?
A key to the company's ability to grow revenues is its strategic partnerships. JNPR recently inked a deal with Nortel Networks (NT 76) which agreed to resell Juniper's high-speed routers. With these agreements, Juniper is able to expand its markets significantly, especially internationally by taking advantage of Nortel's contracts with incumbent telephone companies in Europe and Asia, where Juniper is not well known. Juniper will also be able to leverage this agreement to snag much larger telecom network contracts. Also, as a testament to the company's R&D efforts, there are rumors that Nortel may end the development of its own router and settle for Juniper's M40.
Stolen the following from GorillaGorilla's post (linked below):
Barriers to entry for a new router

The only thing I can see which can spoil the router party being thrown in the Juniper offices would be the introduction of a new superior router (Avici????). However it faces a number of barriers of entry.

a) Software - the software must be compatible with Cisco's operating systems IOS and now Juniper's JUNOS. This is not a simple matter. Cisco in Microsoft style hasn't documented all the inner workings. Plus if CSCO has any eccentricities then you will have to put them in. I believe that neonetworks has licensed Lucent's to avoid this heart ache. http://www.lucent.com/press/1097/971014.bla.html

b) Then you have to convince ISP's to test you're router. Why should they use you're router when a thoroughly tested one is already available? Subsequently getting into the market is more difficult while the providers have two good suppliers.

c) Even if they get their router into a user it will take a while evaluating it. All you're first sales will take time until people are convinced you are selling the real McCoy. If Juniper / CSCO comes out with something subsequently then you are back to square one again.

Taking Pluris as an example which introduced it's router in May 3, 1999 - from the news announcements I have only seen trials and no sales. After almost a year.

3)What kind future growth projections are there for Juniper and its market?
The annual market for so-called gigabit routers is expected to mushroom to more than $10 billion by the end of 2003 from about $1 billion in 1999, according to several recent market research reports. Cisco had an 84% share of the market last year, Juniper 16%,
according to Ryan Hankin Kent.

Service providers are clamoring for faster gear to keep up with surging Internet traffic, which in some cases is doubling every 90 days. ``Our traffic is rising eight- to tenfold per year,' says Mike O'Dell, senior vice president of technology at UUNet. Because of that demand, Internet carriers are willing to pay almost any price for equipment that can unclog their networks.

``In this market, price isn't an issue. Performance is,' Mehta says. In its most common version, the M160 will sell for $350,000 to $400,000, says Juniper Chief Executive Scott Kriens. Cable & Wireless is committed to buying 24 boxes for North America and Europe, says Jeff Young, the company's vice president of engineering. O'Dell says UUNet ``is mounting a large deployment,' but declined to give more details.
As for this market niche soon being "bloated with competition", I'm not really worried. For one thing, the first one to market in this space gets the lion's share of the profits. Second, the hardest thing about this space is not actually the hardware, it is the software. Creating software with all the demanded features and complexity that also has the demanded stability is very very hard to do. Juniper has proven the quality of its software by selling heavily into the high-quality ISP leaders - MCI and AT&T. If you've ever tried to sell product into MCI's network, you would know how difficult this is - it usually takes 6 months to a year and several software releases for a new vendor to get past MCI's test labs. Because the M160 is now built on the proven JUNOS, it can be deployed almost immediately. Juniper is building a very strong and well-deserved brand name. They will not be the "little new guy" in this space for long. Soon Juniper will own the high-end router market (not that it will hurt Cisco a great deal), and will have a very high barrier-to-entry for competitors because of it's core port densities, it's software, and it's available cash.

4)What do their latest financials look like?
Periods Evaluated: 6 Months 6 Months
Report Through: 06/30/2000 06/30/1999
Net Sales (Thousands): 177 28
Cost of Goods Sold (Thousands): 66 14
Gross Income (Thousands): 111 13
Gross Margin(Thousands): 62.75% 47.83%
Net Income (Thousands): 39 -9
Net Margin(Thousands): 22.10% -31.52%
Net Income Per Share Common: 0.1100 -0.0900
Cash (Thousands): 797 158
Short Term Investments (Thousands): 384 188
Total of Cash & Equivilants (Thousands): 1,181 346
Total Current Assets (Thousands): 1,258 378
Total Current Liabilities (Thousands): 136 56
Long-Term Debt (Thousands): 1,166 0
Accounts Receivable 60.7 24
This Period Change in Sales 540.94%
Current Cash-to-Debt Ratio: 1.013
Fool Flow Ratio - Current Value: 0.57
Change in Accounts Receivable 152.9%

Margins, Cash-to-Debt, Flowie all look good. It's understandable that debt has increased since Juniper is in a period of hyper growth and it needs to spend to increase its market share. Also, Juniper had an excellent 77% revenue growth rate in its most recent quarter over the last. To quote Paul Johnson, "Juniper reported second quarter results well above published expectations; revenues increased an impressive 76.9 percent sequentially and 543 percent year-over-year," said Johnson. "We believe Juniper is continuing to do an excellent job of managing its financial performance despite the very significant sequential revenue growth. We are raising our estimates for fiscal 2000 and 2001 because of the significant upside performance in the June quarter; we believe our estimates to be conservative." I like the sounds of that!

5)Who are Juniper's current competitors?
Juniper's Competitors

1- Ascend: doesn't seem like a big threat, software issues causing problems
2- Avici: Recently went public and has a Terabit Switch Router (TSR)
3- Cisco: biggest, but very diversified, not as focused as Juniper. In addition, from what I've read, Juniper's router is considered superior.
4- Lucent: Nexabit routers
5- Neo Networks
6- Pluris
7- Tellabs
8- Unisphere
I'd say that Cisco and Avici (w/ Terabit router) worry me the most. Cisco for marketing, and Avici for product. Avici is new IPO, but is taking off.

6)Who are Juniper's customers?
AT&T
C&W
Frontier
GST Network unding
MCI
Sprint
UUNET
Verio
May need to be updated, since customer base is expanding rapidly. Check out all the major ISPs!

Anything else that should be added?

Resources:
1. www.juniper.net
2. http://www.internetstocks.com/launch.asp
3. www.briefing.com
4. www.yahoo.com
5. www.lightreading.com

Read the Measuring Juniper vs. Cisco thread: http://boards.fool.com/Message.asp?id=1360002000415000&sort=id

***Juniper is one of my top picks for my Next Generation Networks Gorilla Basket for all of the reasons stated above. If anyone finds any misinformation, or has anything to add (positive or negative), please do so.

- Chris Larsen





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