Juniper's bottom line boosted by break in supply chain backlog

In the Led Zeppelin song, the line "If it keeps on rainin', levee's goin' to break" was a warning. In the case of supply chain backlogs, there's a pot of gold waiting for vendors that can hold out for the metaphorical levee to rupture. Juniper Networks is among the networking suppliers that's held out through supply chain troubles to now benefit from a "backlog release" in Q3 of this year.

"Juniper experienced an easing supply chain and nibbled into its still substantial backlog," said analysts at Raymond James in a newsletter commenting on Juniper's Q3 results.

Juniper brought in $1.4 billion in revenue for Q3, up 19% year-over-year and an increase of 11% sequentially. The networking company's results were 4% ahead of Rosenblatt Securities' forecast, "although more than 100% of the upside was driven by backlog release," noted the analysts in a newsletter.

Figure 1:
(Source: Sundry Photography/Alamy Stock Photo)

"I'm not surprised by the backlog performance," said Juniper CFO Ken Miller in a call with analysts. "I still expect it to be up as compared to the beginning of the year and still extremely elevated, but do think we'll start to see a decline here over the next couple of quarters."

However, Juniper can't yet claim the whole pot of gold held hostage by supply chain challenges.

"Management asserted that despite some easing, supply chain constraints represented its biggest hurdle to achieving double-digit growth in 2023," reported Raymond James. "Management remained upbeat regarding demand and backlog declined by ~$100 million to $2.3 billion vs. ~$400 million pre-pandemic."

Juniper's automated WAN business, which mostly includes service provider routers, grew 39% YoY and 15% over Q2 to a total of $533 million, according to Rosenblatt Securities. In addition, the service provider business grew 17% YoY, noted Juniper CEO Rami Rahim in a call with analysts.

"Juniper sees the service provider market as cyclical," said Rosenblatt Securities. "It is currently in a cyclical upturn due to COVID and 5G, but is likely a flat market over the long-term."

The cloud-ready data center and AI-driven enterprise segments, which includes the Mist WLAN wireless platform, grew 18% YoY and 16% YoY, respectively. Juniper expects the cloud segment to continue to experience strong growth – the overall cloud business grew 24% YoY.

"Many of our cloud customers are early in their deployment of large-scale 400-gig upgrade and data center builds that are likely to present multi year revenue tailwinds as supply improves," said Juniper's Rahim.

The enterprise business also performed well, up 17% YoY and up 10% over the previous quarter. Juniper's software and related services sales segments increased 21% YoY to $248 million. However, investors are concerned about the impact a potential recession could have on enterprise spending, noted Raymond James.

There are rays of light shining through the storm clouds: "Within the enterprise, we see Juniper’s share gains and backlog as cushions," added Raymond James.

Looking ahead, Juniper leadership expects 7% YoY growth for fiscal year 2023.

Related posts: