Juniper reports earnings this Tuesday, following repeated warnings about carrier spending being weak when it comes to wireline networks.
The results have held up in earnings reports and previews from Alcatel-Lucent (NYSE: ALU), Adtran Inc. (Nasdaq: ADTN), Acme Packet Inc. (Nasdaq: APKT), Calix Inc. (NYSE: CALX), Ericsson AB (Nasdaq: ERIC) and notably F5 Networks Inc. (Nasdaq: FFIV) -- the latter being a company that's doing pretty well. F5 didn't disappoint with second-quarter earnings, but it also said that the economy will dampen its third quarter.
The problem has been the economy, with vendors expecting carriers to stay stingy in the near term. That's translating into an even stronger emphasis on wireless networks -- where the traffic and revenue growth are perceived to be.
For Verizon Communications Inc. (NYSE: VZ), in particular, to spend money on wireline gear, "the equipment in question has to be tied directly to incremental new revenues," wrote analyst George Notter of Jefferies & Company Inc. , in a report earlier in July.
So, why should Juniper be any different?
For one thing, its sales don't rely on older, declining products. The downward slope of the DSL business is one thing that affected Adtran's earnings, Notter points out.
Notter also argues that Juniper is coming off a quarter that saw strong sales with Verizon. And he believes routing, like optical transport, is "more closely tied to new traffic growth (and new revenue) for the operators," as he phrased it in a recent report following Adtran's earnings.
In other words, he thinks the carrier spending patterns that have hurt other companies won't hit Juniper as severely. (On the optical side, he similarly thinks Ciena Corp. (NYSE: CIEN), which has a fiscal quarter ending in July, should be OK.)
Other analysts don't necessarily disagree. In April, Juniper predicted second-quarter revenues of around $1.03 billion and non-GAAP earnings per share of 16 cents; the consensus reported by Thomson Reuters has stayed near those figures.
The question is what happens after that.
Juniper had an unusually good first quarter with Verizon. And AT&T Inc. (NYSE: T) "appears to have reduced its 2012 core network spending intentions over the past quarter with the next significant upgrade now pushed to 2013," writes MKM Partners analyst Mike Genovese, in a report published Monday morning.
Juniper is also counting heavily on new products to ramp up late this year, including the T4000 core router, the QFabric data-center fabric and the PTX packet-optical element that's part of Juniper's converged supercore. Juniper expects that in the year ending December 2013, the new products will produce revenues of around $150 million per quarter, which could be 17 percent of the total.
So, your take on Juniper's chances probably depends on how much you believe in these products -- and not everybody believes.
"We are not convinced that new products can drive sustainable long-term organic growth," Mizuho Securities USA Inc. analyst Joanna Makris wrote in an early July report on Juniper. "We think Juniper should aggressively pursue targeted acquisitions that align with its switching and routing business -- specifically in areas of mobility and cloud computing."
In fact, Makris thinks Juniper might lower its forecasts even more. Juniper recently said it expects year-to-year revenue growth of 9 percent to 12 percent through 2015.
Genovese doesn't see much market interest in the full QFabric switch fabric (although sales of the related QFX-3500 top-of-rack switch have been promising). And while he considers the PTX supercore to be a potential hit, it's not likely to generate sizable revenues until the second half of 2013.
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— Craig Matsumoto, Managing Editor, Light Reading