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Who is Winning the Battle in the
High-End Router Market?
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Michael Wijaranakula
Staff Researcher, Infotix
Systems, Inc. - July 21, 2004
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Although China-based
Huawei Technologies Co. Ltd. is a key player in China's
telecom market, only 20 percent of the company's
business are generated internationally from countries
such as
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Russia, Romania, Egypt and Brazil, according to
Optical Keyhole, a market research firm, based in
Chichester, UK. Huawei focuses on fixed network, mobile
network, data communications, optical network, software
& services and mobile terminals but especially on
ASIC chips outfitted on their products.
ASIC chips allow
Huawei to build custom products for their customers for
their specific needs. Huawei recently won China
Telecom's national backbone contract in April, which
would allow Huawei to optimize Guangdong provincial
163-backbone network with their line of servers, NE5000
and NE80.
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market share for the NE5000 high-end core router and 75%
of the NE80, gigabit switch router in the development of
the Chinese network.
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Huawei Technologies
currently has a joint venture with Santa Clara-based
3Com Corporation (NASDAQ: COMS) to try to compete in the
high-end router market. According to Optical Keyhole,
the joint venture, which is based in Hong Kong and owned
51% by Huawei, is established in part to deliver a
high-end extension to 3Com's existing products such as
DSL router and Internet Access Systems.
Last year, Huawei was alleged to
infringe patents and intellectual property related to
router technology. Cisco subsequently filed suit against
Huawei claiming that Huawei copies portions of its ISO
source code, technical documentation and command line
interface and was guilty of infringing at least five
patents related to proprietary routing. According to
Reuters, Huawei attracts customers by offering products
that cost 20 to 40 percent less than that of its
competitors. Huawei's sales soared 42 percent last year
to $3.83 billion and the company is in a planning stage
for an IPO.
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Other networking corporations such as Foundry Networks (NASDAQ:FDRY)
hope to also push their high-end routers to try to compete with
network giants Cisco and Juniper. Foundry is marketing a high-end
router such as Netiron 40G which can deliver up to 1.2 Tbps
switching capacity. Two of Japan's largest electronics
conglomerates, Hitachi and NEC, recently said they will set up a
joint venture in October to make mid-range and high-end routers and
switches, aiming to churn out globally competitive products.
In this rapidly growing sector, we believe that Cisco and
Juniper, which provide the most sophisticated software and hardware
to their corporate customers, will remain the winners in the
high-end router market. Cisco's share price is currently trading at
$21.50 with a near-term support level of $21.00 and a 12-month price
target of $29, according to Thompson/First Call. This week, Juniper
released a strong second quarter earnings report with sales soaring
86 percent. Juniper's share price is currently trading at $23.30
with a near-term resistance at $24.50 and a 12-month price target of
$30. Rumors persist that Foundry Networks, which has seen its market
cap sink almost 65 percent to ~ $1.6 billion in the past 5 months,
could be one of the next take-over targets in the network router
business. Foundry's share price is currently trading at $12.
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About
NMS Research Analysis:
NMS Research Analysis is a service of Infotix Systems, offering
in-depth research analysis of high-tech companies and emerging
technology in sectors ranging from semiconductors, biotech,
nanotechnology, IT hardware and data storage to wireless, Internet
and consumer electronics.
Our portfolio holds long
positions
or controls in CSCO and JNPR.
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