CIEN, JNPR, CSCO: Signs of ‘Drastic Change,’ Says FBR

FBR Capital’s networking analyst Scott Thompson this afternoon writes that the coming weeks will be a volatile time for communications equipment stocks, starting as soon as next week, with “signs of drastic change and ramping competition painfully apparent to the buy-side and sell-side consensuses,” he believes.

What kinds of signs?

Thompson thinks Ciena‘s (CIEN) analyst day on Monday will be reveal the extent to which, as he puts it, “In this cycle, optical infrastructure will play a more important and prevalent role in the network.”

It’s Ciena’s game to lose, in some sense:

We anticipate that the result will be a broader market in which optical networking companies are able to apply their technologies, potentially increasing the size of the total addressable optical market. Cisco, Alcatel Lucent, and, possibly one day, Juniper are all likely to release new and more competitive products in the optical space over the next several months and quarters. While we are relatively optimistic about Ciena�s prospects of taking a leading role in what could turn out to be a once-in-a-decade type of upgrade cycle, we expect that the company will have to fight a little harder this time around for business that it would ordinarily expect to have.

Next up is Cisco’s “Cisco Live!” event on Tuesday and Wednesday.

After a year of restructuring, Cisco is focused on enhancing its portfolio for what’s called “Intelligent Networking,” writes Thompson:

We expect that Cisco�s new intelligent network product could be acutely focused on meeting the needs of the service provider customer, particularly in the metro core and datacenter. While we think the initial impact from Cisco’s new products will be negative due to the near-term dilutive impact to margins, the longer-term impact of Cisco’s new product line will become a key component in Cisco’s efforts to gain competitive traction, gain share, and reaccelerate earnings growth into 2013.

Also Tuesday is Juniper Networks’s (JNPR) analyst day. Thompson is hoping there’ll be some signs of life in Juniper’s software group:

Isn�t it about time that Juniper�s software product group makes a real product contribution to the business? If so, we expect that the analyst day may be a well-timed opportunity to start talking about it, providing investors with some potential, unexpected upside surprise. We continue to believe that JNPR trades (21x 2012 earnings) at an unnecessary premium to its peer group (approximately 10x earnings), and we expect shares to continue to decline until valued closer to parity with the sector.

Previously: CSCO, JNPR, FFIV, RVBD Sufficiently �Cloudy� for Citi, June 8th, 2012.