PAT,
You've made a number of good points and i don't disagree with any of them but let me add some perspective.
First IDC, DataQuest, Verticle, and other - what I would consider to be non-research firms - have been way off in projecting revenues in new markets. But, as I said, these are non-research firms - they get their data from the vendors. So when you see numbers like those I presented you can assume that the vendors themselves have similar expectations. Yes, these "analysts" throw their own spin on the numbers they get from the vendors but you can bet that the numbers are close to a compilation of forcasted sentiment.
The next point you made is that JNPR will generate more cash from the secondary. I forgot the numbers but most of the secondary is coming from investors like Lucent and Siemens (I believe). Could someone please share those numbers again? The point is that the number of shares from the secondary that will go to fuel R&D is not much. BUT, I don't think that JNPR really needs the cash. They are able to fuel growth with current sales and existing cash reserves. This all notwithstanding I did (if you go back and look) make assumptions that JNPR will compete with CSCO in the enterprise market. The M40 is already their edge router and the core router market will be small due to the emmergence of POS. So, in reality the only really huge growth market that JNPR has is the mid-range enterprise market. BUilding a router to compete with CSCO will be very difficult - not impossible - but difficult. The featureset that exists in IOS now - and 18 months from now will be next to impossible to match IMO. JNPR's claim to success in the edge router space (M40) is that it is not weighted down by the legacy OS (IOS) and that the functionality provided by IOS is not required on the edge...which is probably true... but IOS was build to be everything to all people - especially in the enterprise. I suppose JNPR could build a specialize router for a specific vertical market - but then they are not targeting the entire enterprise market. THey could build specific routers or OS's for targeted verticals and try to cover 80% of the enterprise but then the overhead of supporting all these versions would be too costly. So, what will JNPR do. They could build a JNPR version of IOS...but then what is the benefit to the customer and more pointedly what is their chances of success given CSCO's thousands of manyears already invested? Finally, the very thing that JNPR says is bad about IOS will then be bad about JUNOS. Of course this all assumes that JNPR really wants to take on a gorilla head on... Business 101 says this a probably not a smart tactic and Scott Kriens is waaaaaaay too smart for that. I think the approach will be significantly different and that JNPR will focus on the carrier market and get the business moving there. If that succeeds then JNPR may take on the enterprise but I personally don't think this will happen in the next 18 months.
So, from point of view, you have to value JNPR on the success of the edge router market in the carrier and perhaps give them some credit for core enterprise routing. This is all they have now and all they'll be marketing for the next 6 months. Their market share will continue to be less the 10% in each and given the market sizes (even if you quadruple the numbers provided by IDC and Dataquest) does not justify anything close to a $10B valuation.
OG |
