The Face of the New Juniper

Juniper is expected to announce headcount reductions and product cancellations on its 2Q02 earnings call tonight

July 11, 2002

5 Min Read
The Face of the New Juniper

Heads have already begun to roll at Juniper Networks Inc. (Nasdaq: JNPR). According to sources close to the company, workers who are part of the expected 10 percent headcount reduction in the company already started receiving pink slips this morning.

The news will be officially announced this evening when Juniper releases its second-quarter 2002 earnings, sources say. The company is also expected to tell investors that at least one of its products will be eliminated from the lineup. All of the moves are part of a repositioning of the company, following its $740 million merger with edge routing player Unisphere Networks (see Juniper Acquires Unisphere).

This will be the company's first earnings conference call since the merger. It's also the first conference call since the WorldCom Inc. (Nasdaq: WCOM) accounting troubles developed at the end of June. WorldCom has always been a significant Juniper customer.

While analysts aren’t expecting any big surprises tonight, most are awaiting details about which products and workforces will survive the merger. And everybody is looking for a little more information on what the new face of the combined “Junisphere” will look like.

Sources close to the company say that most of the layoffs are expected to be in areas like finance and billing, human resources, public relations, marketing and sales. As a combined company, these functions need to be streamlined. Offices on both coasts will likely be hit.

“It’s not a surprise to see them rationalizing their cost structure,” says Sam Wilson, an analyst with Merrill Lynch & Co. Inc. “That’s what you do in an acquisition. You don’t need double accounting and double human resources.”

Even though Juniper’s and Unisphere’s products complement each other very well, there is some product overlap. Rumors have been floating around for weeks that Juniper will cut at least one of these products from its roster (see What to Expect From 'Junisphere'). The big question is which one will get the axe. Stephen Kamman, an analyst with CIBC World Markets, says that mergers of this kind are as much about people and personalities as they are about strategy, suggesting that which products stay and which go are often based on company politics. He predicts that Unisphere’s MRX, a multiservice switch, is the likely victim.

”Much of the excitement surrounding multiservice-over-IP has lost its luster,” says Kamman. “Juniper may look to take their own approach to the project. Having gone through a merger myself and watching other companies go through them, I’d say that making a merger work is about making people happy. Other factors come into play all the time.”

As for the M5 and M10 Juniper routers, which compete directly with Unisphere’s hot-selling ERX, he predicts they won’t be canceled. Instead, he says, Juniper will probably discontinue developing enhancements for the line and will concentrate its sales efforts more on the ERX.

One element of the deal is starting to emerge -- that is, this deal looks more like a merger than an acquisition. Both Juniper and Unipshere employees are being laid off, but Unisphere's Boston-based presence will remain significant. This makes sense, because Unisphere is a well-established player in the edge routing market, which is consdered one of the healthier telecom markets at the moment. The company is believed to have more than $150 million in annual revenues.

The Unisphere team is expected to remain on the East Coast, where it will head up marketing and development of the edge routing portfolio. Juniper's West Coast team will likely handle the core routing products. The two camps are expected to have a unified sales force that will sell both product lines.

Lloyd Carney, executive vice president of operations for Juniper, and former Unisphere CEO Jim Dolce will be working closely together to keep the two bookends of the company working in sync. Dolce now has the title of executive vice president of worldwide field operations. Carney will handle engineering and operations, while Dolce will be in charge of sales and marketing.

Both executives are well versed in acquisitions. Prior to Juniper, Carney was president of the wireless division at Nortel Networks Corp. (NYSE/Toronto: NT). He came to Nortel via the Bay Networks acquisition and came to Bay through its acquisition of Wellfleet. Dolce had founded Redstone Communications, which was acquired by Unisphere. He also served as vice president at Cascade Communications, which was acquired by Lucent Technologies Inc. (NYSE: LU).

"Dolce and Carney both have scars from past mergers,” says Kamman. "I’m relatively confident that they will be able to work together to make the integration work.”

As far as the numbers go, Juniper isn’t expected to announce any big surprises. Analysts are expecting a one-cent loss, according to First Call, compared to a nine-cent profit for the same quarter a year ago. Analysts are also expecting revenues to be down from the $122 million reported in the first quarter -- this quarter’s revenue are expected to be closer to $108 million.

The shortfall can be blamed in large part on Juniper’s association with WorldCom, which made up about $12 million of Juniper’s revenue in the first quarter. Late last month, Juniper issued a statement saying WorldCom would account for close to $7 million worth of revenue in the second quarter. Juniper also has significant exposure to other troubled service providers, such as Qwest Communications International Inc. (NYSE: Q).

”I’m not expecting any fireworks tonight on the call,” says Merrill Lynch’s Wilson. “Everybody already knows the bad news. The carrier landscape is still tough, and Juniper sells 100 percent of its products there.”In after-hours trading, Juniper was up $0.82 (11.36%) to $8.04.

— Marguerite Reardon, Senior Editor, Light Reading

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