I have been all over the Juniper Networks, Inc. (NYSE:JNPR) site looking at routers, because I had heard an offhand comment that Juniper had a router that was at the same level regarding some physical specs as Alcatel Lucent SA (ADR) (NYSE:ALU)‘s . I could not find anything that really matched the things I was impressed by, though the PTX line is pretty fantastic for offering a lot of power and capacity in a compact area. The four 100GBE ports per slot on the new core router of Alcatel-Lucent really impressed me. I did not see anything that could match it slot-for-slot.
Core routing to the rescue?
It is nice that Verizon chose to go with Alcatel Lucent SA (ADR) (NYSE:ALU) for the core routers, though there has not been any specific news regarding this recently. The background on the core router is that Alcatel Lucent SA (ADR) (NYSE:ALU) created a fantastic core router using some of the same technology it deployed in its much older edge router. The new core router is a beast by all accounts, but is supposed to use less space and power considering its throughput. The middle standard model of the core router has 16 terabits per second of routing capacity, which is substantial. It can also be doubled for the high-end system, and Alcatel Lucent SA (ADR) (NYSE:ALU) is working on a multi-chassis approach to link 3 or more routers.
I think there is a strong demand for the power of the router. Alcatel-Lucent was number two for a bit in edge routers, after entering the market with nothing but a product and is currently third by only a small margin. It bumped Juniper Networks, Inc. (NYSE:JNPR) from the spot initially, but Juniper Networks, Inc. (NYSE:JNPR) has retaken the lead. Juniper is stronger in core routers though, and I think it will be a bit of an uphill battle for Alcatel Lucent SA (ADR) (NYSE:ALU).
I really want to hear the next earnings call from the new CEO and get some information regarding sales. I would go over Alcatel-Lucent’s financials, but I am not a masochist. I will say that it has almost $20 billion in revenue, though this may fall as the company makes cuts in order to actually turn a profit.
Networking shares consistently lag
Juniper Networks, Inc. (NYSE:JNPR)’s share price leaves something to be desired just like Alcatel Lucent SA (ADR) (NYSE:ALU), though far less dire. Juniper’s flat revenue seems a bit troubling, and I wonder what will turn it around. There are the current products that the company has that can result in increased demand. It might be something new, but that would take time. I have been scouring news to see if I could find something to chew on, but nothing really stuck with me. The PTX and the T4000 are impressive, but it would take time to realize growth and even then, there is no guarantee.
I will wait for the next earnings call. I want to hear less about what happens five years from now and what will keep the company great until then. SDN is not too high up on my list right now, because it will be at least a year before potential customers are even testing it. I am not really negative on Juniper Networks, Inc. (NYSE:JNPR) though, but just curious as to what will drive it. I do not think it would be a good candidate to short or buy puts. The EPS decline has already occurred. I want information that signals to me the company can get revenue growing and earnings increasing.
Silent in the background of this saga is Cisco Systems, Inc. (NASDAQ:CSCO), the titan from the primordial times of networking. Core routers are not a giant piece of Cisco’s revenue anymore, though Cisco is the market leader. Cisco Systems, Inc. (NASDAQ:CSCO)’s focus is elsewhere, but its sheer presence makes it something to be reckoned with. Most of the interesting news regarding the company deals with small cells, LTE, and other mobile-related stuff, but it still maintains dominance in routers.
Cisco Systems, Inc. (NASDAQ:CSCO) extends beyond core routing, and I think it is better to look at the company as the financially-solid and entrenched market leader. It has such a large market share that it is using a defensive strategy, which is less interesting than the offensive approaches of the competition. Less interesting does not mean ineffective, and nothing will be easy for Alcatel-Lucent or Juniper Networks, Inc. (NYSE:JNPR).
Cisco Systems, Inc. (NASDAQ:CSCO) has not exactly been flying high, but this is because of the general malaise in networking. I think 2013 will be a good year for networking in general, because there was too little spending in 2012. I expect 2013 to be better if only slightly, but there will be growth in subsequent years. That might not translate into a higher share price for Cisco Systems, Inc. (NASDAQ:CSCO), but I am expecting the company to make gains before next year as witnessed by my 2014 calls.
Contrasting Cisco to the other two companies, it has increasing revenue and a fairly substantial upward sloping EPS. People are upset with the stock because it has not moved in a decade. If it does not move in 2014, I will roll my position to 2015. I do not think Cisco Systems, Inc. (NASDAQ:CSCO) will stay near $20 for much longer. The rest of the market made its move, now it is Cisco’s turn.
Conclusion
I have a position in Alcatel-Lucent because I think certain good news will send the company flying. It has been heavily beaten down, but the impetus of the decline was the worry of a liquidity problem regarding debt. The company has pushed back this problem, and it has time. That is not enough to send it up, nor is it deserving.
However, with more time and cash comes more flexibility. The company can start heading toward a profit, and signs of that should lead the shares higher. The reward for a successful turnaround is massive, the stuff of legend. However, the odds are against you, which is what makes it so rewarding.
The article Lagging Networking Companies Providing Opportunities originally appeared on Fool.com is written by Nihar Patel.
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