Sector- Do we have any high speed backbone routers in the product mix either directly or through our investment companies????
Scientists Put Investors on Networker
Juniper's Scent
By Kevin Petrie
Staff Reporter
5/19/99 11:00 AM ET
SAN FRANCISCO -- One asset puts Juniper Networks
ahead of other IPOs in the Internet equipment sector: its
cadre of Cisco (CSCO:Nasdaq)-trained scientists.
This dream team left Cisco and moved to Juniper beginning
in early 1996, designing a new network router that wouldn't
be encumbered with aging software code. Two-and-a-half
years later, Juniper shipped the M40, a router as intricate as
a nuclear weapon, according to chief scientist Mike O'Dell
with UUNet. His company, a unit of MCI WorldCom
(WCOM:Nasdaq), has an undisclosed stake in Juniper and
has developed products jointly with Juniper for more than two
years.
The Cisco alumni keep a low profile. Juniper's chief technical
officer, Pradeep Sindhu, comes from the labs at Xerox
(XRX:NYSE), and Juniper declined to comment about the
defectors from Cisco. But it's clear that one wizard named
Tony Li had hopped to Juniper by June 1996.
Juniper's engineering talent has generated unparalleled
interest among potential investors. That's largely why Juniper
is sizing up as the year's most anticipated IPO in the
networking sector. The 3-year-old company expects to sell
shares worth $70 million during the week of June 21. CEO
Scott Kriens was restricted by an SEC-enforced quiet period
and couldn't comment for this story. But potential investors
can't stop talking about Juniper's technology.
"We historically haven't participated in IPOs, but Juniper
might be strong enough that we'll take a swing at them,"
says Doug MacKay, assistant portfolio manager with Oak
Associates and a longtime owner of Cisco.
Others agree that Juniper is the most promising of a recent
crop of networking IPOs. Juniper now represents "the most
credible challenger to Cisco," according to Joe Skorupa, an
analyst at market research firm RHK. Juniper already counts
Cisco rivals Nortel (NT:NYSE), 3Com (COMS:Nasdaq),
Siemens, Newbridge (NN:NYSE) and Ericsson
(ERICY:Nasdaq ADR) as investors.
Right now Cisco, with $11 billion in revenue in the four most
recent quarters and a market valuation of $186 billion, rules
the router business. But there's room for swift competitors to
grow. RHK estimates sales of backbone routers -- a
high-growth and profitable slice of the router market -- will
jump from $169 million in 1998 to $5.5 billion in 2003. So the
rise of Juniper, a 200-employee outfit based in Mountain
View, Calif., is not so much bad news for Cisco as it is good
news for investors looking for a new story in the
communications-equipment sector.
"I just need them to take a little bit of what Cisco's got,"
says Craig Ellis, a fund manager at investment firm Orbitex
Management and a Cisco shareholder who is considering
adding Juniper to his portfolio.
Valuing companies like Juniper can be tough in this
fast-growing industry, where upstarts are having no problems
raising cash. On Tuesday, shares of Redback Networks
(RBAK:Nasdaq), a developer of network software, more than
tripled to 84 1/8 as the company came public. Extreme
Networks (EXTR:Nasdaq), a builder of network switches for
corporations, roughly tripled on its first trade April 9.
Juniper Finds a Reawakened IPO Market
Stock price of Extreme Networks and Copper Mountain
Networks since IPOs
Source: Baseline
But not all of them share the same outlook. Extreme, which
lost $12.5 million last year, may encounter difficulties as it
competes with the vast sales channel and price-slashing
tactics of competitors such as Cisco, Nortel and Lucent
(LU:NYSE).
Unlike Extreme, which sells its switches to corporations for
lower-traffic uses, Juniper equipment helps carriers handle
Internet backbones. O'Dell at UUNet says when it comes to
routers as intricate as Juniper's, his company will pay a
premium for performance. Months in UUNet's lab, he says,
showed Juniper routers handled higher volumes of digits
more reliably than the alternative.
And router companies don't necessarily need an elaborate
sales channel or proven brand name to win a carrier's
business. Jeff Young, chief engineer with Cable & Wireless
(CWP:NYSE ADR), says his company is more than willing
to purchase product from a start-up.
More router companies will follow Juniper to the public
markets if the reception is strong. Nexabit Networks has a
higher-speed router in trials with long-distance carrier
Frontier (FRO:NYSE). Nexabit CEO Mukesh Chatter says,
"We want to build two solid quarters, and then go public."
As is often the case, Juniper's charm doesn't lie in the
profit-and-loss statement. In the first quarter, Juniper posted
revenue of $10 million, up from zero in the same quarter last
year. Its loss widened to $6.7 million from $3.9 million a year
earlier.
As Juniper has broadened its customer list, winning ISPs
such as Verio (VRIO:Nasdaq), Juniper has trimmed its
dependence on its longtime investor MCI WorldCom.
WorldCom orders accounted for 65% of revenue in the first
quarter, down from 78% the prior year. Verio, meanwhile,
accounted for 16% of revenue in the first quarter.
So who knows? After the initial pop, Juniper might even
retain a few institutional investors.
Or, as one analyst with a money-management firm wryly
puts it, "It could possibly be a good buy, even after the IPO."
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