It wasn’t that long ago that the prevailing debate in the networking sector was, “Which is better: Juniper Networks  or Cisco ?” I continue to do my best to squash these arguments. But the optimism in Juniper remains overdone.

There’s no way this stock should command a price-to-earnings ratio of 57, especially when Cisco wins in every meaningful category such as return on assets, return on equity, operating cash flow, margins — you name it. This story is far different today than what was told at the height of the dot-com bubble. And management is looking for options.

Is the writing on the wall?
There are now reports that Juniper attempted to sell off some of its assets to rivals last year. But it was unable to find a buyer. In a recent Reuters story, it was revealed that Juniper reached out to several competitors (presumably Cisco) to gauge interest in assets such as NetScreen Technologies, a security business that Juniper acquired in 2004.

However, there were no takers. It was determined that the company’s assets lacked innovation and growth — pretty much the same thing that I’ve been saying for years. But management denied the report. Kevin Johnson, Juniper’s CEO was quoted as saying, “If you look at the acquisitions we have done, we’re a buyer not a seller.”

It’s true, the company picked off software start-up Contrail Systems last year and then acquired enterprise security software company Mykonos. But that’s just two acquisitions over the past three years. Meanwhile, Cisco had 11 acquisitions last year alone. Essentially, Cisco is ramping up to regain any market share that it has lost over the years to Juniper and others.

I think Juniper’s management has begun to realize what’s going on. And it’s not by coincidence that NetScreen was the subject of the sale. Juniper’s enterprise security prospects have been diminishing for some time and losing ground to (among others) Check Point Software and F5 Networks. And the company has found no solution to stop the bleeding, which culminated in a grim 2% revenue growth in the most recent quarter — not exactly “tech company” performance.

Bad blood and elbow room
Unfortunately, the security space has begun to get more crowded. The arrival of ground-breaking technologies from Palo Alto Networks have heightened the urgency while also raising some tension. Granted, they are not all competing for the same market. And it may be a stretch to say that Juniper is losing ground to an upstart like Palo Alto, it doesn’t erase the threat of margin pressure that Juniper will likely face in the long term from Check Point and F5.

Conversely, Cisco, which has a much stronger enterprise presence, has been buying its way into higher-margin businesses such as Intucell, while leveraging its existing security offerings with Cognitive. For Juniper, however, while it’s great that the company is now “reviewing” its enterprise focus, I stand by the overall point that the company does not have the technology to rebuild …read more
Source: FULL ARTICLE at DailyFinance