Analysts: Juniper Networks Hits Sink Hole Or Just A Rough Spot?

Juniper Networks, Inc. JNPR is either crashing into a deep sinkhole or just running over some ruts, according to diverging analysts' views.

Juniper's warning Thursday that weak demand in the United States hurt third-quarter profits is alarming to MKM's Michael Genovese, who said the company is getting hit by demands for 50-percent price cuts from major customers.

The $6.5-billion market for edge routers that send data from local area networks to the so-called backbone of the Internet is in a "massive transformation" as the devices increasingly compete with software-based "virtualized" systems, according to Genovese.

Related Link: This Time, The Market Worries Are Fundamental

Major telecom companies are telling Juniper, along with Alcatel Lucent SA and Cisco Systems Inc., "that they are no longer competing against each other, but rather against white boxes," Genovese said, two days after he downgraded Juniper to Hold from Buy.

Juniper only gets about half of its revenue from edge routers, however, and Barclays' Ben A. Reitzes called Thursday's profit warning "unsurprising." Reitzes maintained an Overweight rating on the shares.

"Our research indicates conditions could improve," Reitzes said, suggesting nonetheless that Juniper come under pressure to boost its buybacks and cut more costs.

Bank of America's Tai Liani sees "deflationary pressures" in router segment growth and sees similar difficulties for Juniper's security and switching segments.

"There's a set of challenges for each of the company's segments and no easy fix whether the company stays integrated or breaks up," according to Liani, who maintained a Neutral rating and cut his target to $25 from $28.

Cantor Fitzgerald's Brian White cut his target to $25, from $29.50, but maintained a Buy rating. Juniper and others in the industry "may have underestimated" the slowdown in demand, White said.

Juniper fell 9 percent Friday, closing at $19.04 a share.