Juniper Meets, But Shares Slump

Beats analyst profit estimates by a penny, but shares down in after hours trading on lack of upside surprise

July 19, 2005

3 Min Read
Juniper Meets, But Shares Slump

Juniper Networks Inc. (Nasdaq: JNPR) continued down the road of profitability and growth, reporting revenues of $493 million and non-GAAP earnings of 18 cents a share for the quarter ended June 30.

Revenues climbed 61 percent from the comparable period in 2004, and non-GAAP earnings beat analyst estimates by a penny, according to Reuters.

The company reported GAAP net income for the second quarter of $89 million or 15 cents a share, compared with a GAAP net loss of $12.6 million or 2 cents a share in the second quarter of 2004. Cash provided by operations was $166.1 million for the second quarter, compared to cash provided by operations of $119.0 million for the same period last year.

"We had another strong period of growth according to many metrics," said Scott Kriens, chairman and CEO of Juniper, on the conference call. "We added almost 2,000 people to the organization in the last year."

Prior to the start of the conference call, investors appeared to be looking for a bit more, as Juniper shares sold off sharply in after hours trading after the numbers were released. The stock was down $0.68 (2.56%) after the session close, changing hands at $25.85. It had risen $0.41 (1.57%) during the day session.

Kriens touted growth in VPNs, IP-based services, and enterprise routing as contributing to the numbers. He also stressed gains in enterprise networking, where Juniper is now going head-to-head with Cisco Systems Inc. (Nasdaq: CSCO). “We’re seeing enterprises deploying both our routing and security products in their network,” said Kriens.

Juniper appears to be developing a new spin on its entrance into the enterprise market, as Kriens spoke at length about the convergence of the enterprise and service provider market with the “virtualization” of services and traffic processing. He also hammed it up a bit with some corporate cheerleading. “Focus and execution is in the DNA here at Juniper,” said Kriens.

CFO Robert Dykes said Juniper's sales in the North America and EMEA regions showed strong growth, while sales in Asia declined. Cash and short-term investments at the end of the quarter totaled $1.9 billion, said Dykes. The company ended the quarter with 3,425 people, up from 3,100 at the end of the last quarter. Most of the new employees came from acquisitions, said Dykes.

Several analysts had questions about the company’s gross margins, which the company revised slightly down during the conference call.

Dykes explained the shift in gross margins due to “lumpiness” caused by shifts in the sales mix of different products and regions. For example, said Dykes, sales in Asia typically have lower margins, so when Asian sales declined in the second quarter, margins creeped up. But Dykes said other factors, such as the mix of different products, will cause margins to change. “We do expect that it will continue to be lumpy,” said Dykes. Gross margins are expected to be between 67.5 percent and 68.5 percent in the third quarter, said Dykes.

In providing guidance for the next quarter, Juniper executives expect $525 million to $530 million in revenue for the third quarter of 2005. The company expects 18 cents a share in non-GAAP EPS. The company expects $550 million to $560 million of revenue in the fourth quarter.

Siemens AG (NYSE: SI; Frankfurt: SIE) continued to be Juniper's largest sales partner, contributing more than 10 percent of Juniper's revenue.

— R. Scott Raynovich, US Editor, Light Reading

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