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Bad Packets: Cool stuff happens...

Redback and Juniper, which both posted quarterly losses recently, represent the rise and fall of the networking industry as an investment opportunity. But do they also represent the second rise?

E-mail Wes Simonds

Here's a visual:

It's 200 BC. The Great Wall of China is completed. Chinese architects are unhappy to find there isn't enough stone to build a whole House.

Now, if you're still with me after this absurd and wholly fictitious vision of mine, there are a couple of points to consider about it.

First, stuff happens. Projects don't always work out the way we think they will.

Second, sometimes we wind up with something cool anyway.

Both of these perspectives, I imagine, are on the minds of the founders of Redback Networks and Juniper Networks, which this week posted quarterly losses unimaginable at the time those firms were conceived.

Both graduates of the hottest technology IPO stock market in history -- the period from about May of 1999 to March of 2000 -- these two companies represent to a greater or lesser degree the rise and fall of the networking industry as an investment opportunity.

And dare I say it? The possible second rise.

Let's take a look at Juniper's story, which of late certainly isn't pretty from a numbers standpoint:

Sure, they're the number two manufacturer of core routers used to transmit Internet data. Not a bad number. Not bad at all.

But there are other numbers that have a lot less sex appeal. This week, Juniper reported a net loss of $5.1 million, compared with a net income of $62.2 million this time last year.

Total revenues, probably a fairer gauge of market demand, were down by almost half over the year... my goodness!

That's no fun.

What's even less fun is the tale of the ticker. If you happen to have invested long in JNPR in mid-2000, when against all the odds it was bucking the NASDAQ meltdown and seemed to be made of helium, you've been feeling the pain of market gravity.

The graph isn't quite a bungee jump, but a long and painful slide over the course of a year, from about October of 2000 to the same period of 2001. It's up again a good bit since then, but nowhere remotely near its former rarefied heights.

Now, the economy to one side, what's really happening here? What can we say about this sad situation besides the fact that times are tough, terrorists are intimidating and for a while we didn't know which guy we wanted to be president?

First, there is the growth reality, which many never saw coming, that the number of nodes on the Net is simply no longer doubling every six months. Some analysts say it's sitting still. Some see declines.

Second, and perhaps more fundamentally, we're not really seeing the emergence of innovative, mission-critical, bandwidth-hungry applications of the type, which inevitably push infrastructure sales up, and with them, the stocks of the related companies.

But is this double kibosh really going to persist forever?

Nah.

Sound like a famous last word, but let's consider a few relevant concepts here. For instance: Does anyone really think we've reached the ultimate limit of Net nodes?

Sure, the American, European and Japanese markets are far more saturated than they've ever been. But the global market is not just about America, Europe and Japan, and the power and appeal of the Internet will inevitably spread to all other markets. The former Soviet Union and China are widely considered major prospects of the future and for good reason, too; in each case, large business populations with a high interest in technology represent potent opportunities for vendors. Latin America and South America, too, are well aware of the potential of the Internet to expand and simplify their economies. In short, you can be sure that where the Net isn't today, it will be tomorrow.

And on the applications front, the pointed question "What's going to drive future demand for bandwidth?" -- so intimidating at a time when many analysts decry a fiber glut -- seems to have a number of promising future possibilities.

Among them is voice over IP, which probably more than any other networking technology carries with it a shining selling point for heavy-duty infrastructure equipment of the type sold by Juniper: nothing less than an end to the concept of per-minute charges, and the beginning of a future in which real-time voice is as free as e-mail. Better believe that's going to be something everybody wants. And it will consume router processing like a devouring flame.

So what am I saying -- buy Juniper today? Not at all.

I'm no market pundit, I've got no clue where the NASDAQ is headed in the next year or two, and I certainly can't say what's happening inside Juniper that might lend focus to this wide-angle market panorama.

I'm only saying this: Stuff happens... but you often wind up with something cool.

Bad Packets: 2002 predictions in networking and the box office

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