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Juniper, Cisco Clear Frontrunners

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In tech sector, it's a two-horse race.

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Juniper Networks (JNPR) crushed its current quarter, while also bumping guidance. Juniper said it expects third-quarter earnings between $0.29 and $0.30 per share on revenue of $925 to $935 million; consensus estimates put earnings at $0.29 and $889.5 million for the upcoming quarter.

Juniper also said it expects 2008 to come in at $1.14 to $1.17 per share and revenues between $3.59 and $3.62 billion. The company previously guided for EPS at $1.10 to $1.13 per share and for revenue at $3.40 billion to $3.55 billion for the year ending December 31, 2008.

Longer term, you have to look at the landscape and history of this space to get a better feel for where Juniper and Cisco (CSCO) might trade.

First, it's amazing how the publicly-traded networking sector has basically become a two-horse race in just a few years - and the two horses are Cisco and Juniper. Brocade (BRCD) and Foundry Networks (FDRY) are still challenging in the storage and switching markets (and I do think this deal works over time).

Remember Bay Networks - they were swallowed by and got lost in Nortel Networks (NT).

Remember Ascend Communications - they were swallowed and disappeared inside of the old Lucent.

Remember when 3Coms (COMS) was the number-2 global networker? You don't see Ericsson (ERIC) jumping up and down about how great their purchase of Redback Networks has been - though that might be working for them.

And this is just a good start because I could go on and bore everyone but the diehard networking historians and technology junkies to tears.

The only new competition is Huawei, and it has gone on from humble beginnings to be immensely successful. However, it has two key benefits: It's a Chinese company that gets a ton of sales from its home country/region, and it has wisely stayed private during this long-running bear market in technology.

Currently, Juniper and Cisco are benefiting from the muted economic conditions, since they keep component pricing low. This helps quell any rising competition and gives their stable stock prices (and massive balance sheets), greater currency to invest in promising technology and startups. See Juniper's investment in very promising Xsigo, and Cisco's multiple purchases of private upstarts (Pure Networks most recently).

Given my vision of the future landscape in bandwidth, storage and data center investment (articulated in prior Buzzes and articles), we're setting up for a strong or even exceptionally powerful networking cycle with just the two current networking giants (along with Huawei) essentially having the field to themselves.

Bottom line, while it won't happen overnight, Juniper and Cisco should see rising estimates and growth cycle valuation expansion over the coming 18 to 36 months.
Position in JNPR, CSCO

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