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So you think that data networking will beat the market for years to come, as high-definition video and other bandwidth-hungry applications proliferate in the real world? Can't blame you. But if you want to ride that wave, how do you pick a networking specialist to invest in? That's the real trick.
First off, you can choose sides based on current market presence and profitability. This division puts Cisco Systems (Nasdaq: CSCO ) and Juniper Networks (Nasdaq: JNPR ) head and shoulders above the likes of JDS Uniphase (Nasdaq: JDSU ) and CIENA (Nasdaq: CIEN ) . The big guys are, well, big and profitable. The smaller players seem to lack the scale to turn a profit today. As turnaround candidates or up-and-comers, JDSU and Ciena might float your boat. But proven winners, they're not.
Cisco is much bigger than Juniper, but both are big enough to turn a profit. The main difference between the two, besides economies of scale, is a difference in target markets. Cisco rules the data center for thousands of enterprise-class corporations, while Juniper is still breaking into that market. For long-haul data transfer needs, the situation is reversed. Juniper is arguably the top dog when data-hungry service providers like Verizon (NYSE: VZ ) and AT&T (NYSE: T ) need to improve their networks.
From that perspective, you could argue that Apple (Nasdaq: AAPL ) is Juniper's best friend right now. The more strained AT&T's national and global networks become under the data-gobbling onslaught from iPhones and soon-to-come iPads, the more hardware AT&T needs to buy from Juniper to rectify the problems.
In the fourth quarter of 2009, Juniper delivered 2% year-over-year sales growth to end up at $941 million, while non-GAAP earnings stayed flat year over year at $0.32 per share. Cisco is expected to do a little bit better than that in next week's report, but this one was good enough to lift both stocks on a generally flat market day. I see that as a vote of confidence for the networking sector as a whole.
Pick your poison any way you want; all I can do is to describe the battlefield for you. Can you do better? Use the comment box at will, captain.