Analysts React to Elop’s Microsoft Defection

Investment bank UBS on Friday upgraded Juniper Networks Inc. ratings to “buy,” on news that COO Stephen Elop will take over as president of Microsoft Corp.’s business division.

J.P. Morgan Securities, on the other hand, downgraded the Silicon Valley company’s shares to “neutral.”

Elop’s departure is negative for Juniper, wrote UBS senior analyst Nikos Theodosopoulos in a memo to clients. So, the “buy” advice comes because Juniper’s fundamentals will remain intact despite Elop’s surprise defection to succeed Jeff Raikes, who announced Thursday he is retiring from Microsoft.

J.P. Morgan said the loss of Elop will make improvements in the Sri Lanka telecom division difficult.

For UBS, the fundamentals that will see Juniper through include strong router demand as telcos roll out IPTV services around the globe, wrote Theodosopoulos. Internet video companies such as Google Inc. also will contribute to sales.

“We believe router demand will grow 20 percent in ’08,” Theodosopoulos said. “With new edge products gaining momentum in the market, Juniper should have another solid year.”

Elop had been at Juniper just more than a year. Investors have viewed Elop favorably, as he executed well as COO, noted Theodosopoulos. Now it’s time for Juniper to “provide a path to CEO for the new COO in order to get a high-caliber candidate like Elop. We note that Juniper has had two COOs in the past and both left the company within two years of starting,” he added.

Elop, 44, will join Microsoft at the end of this month. Raikes, who has worked for Microsoft for 27 years, will retire in September.

Analysts said on Thursday that adding Elop to the Microsoft lineup will give Microsoft more expertise in its unified communications strategies. One of the biggest competitors in that space is Cisco Systems Inc., a direct Juniper rival. Elop’s experience at Macromedia, the company that developed the Flash player, also should bolster Microsoft’s strength in unified communications.

Juniper’s stocks fell $4.61, or 15 percent, to $26.06 during mid-morning trading on Friday. Microsoft’s shares also were down, but only slightly. Its stocks were selling for $33.99, down 34 cents, or almost 1 percent.

Cisco Systems Inc. www.cisco.com
Juniper Networks Inc. www.junipernetworks.com
Microsoft Corp. www.microsoft.com
UBS www.ubs.com

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