Juniper Boosts Spirits

Juniper Networks Inc. (Nasdaq: JNPR) slightly beat analysts' expectations for the first quarter of 2003, as its quarterly results, announced last night, appeared to temporarily raise the spirits of Wall Street (see Juniper Reports 'Solid' Quarter).

In early trading Friday, Juniper gained $0.75 (8.92%) to $9.16, and it appeared to boost many other stocks in the networking sector.

The company earned $0.02 per share, or one cent better than expectations. Revenues rose 29 percent year-over-year to $157.2 million, beating the consensus of $155.4 million. The company also reported GAAP net income of $3.7 million or $0.01 per share.

Juniper reported generating $12 million in cash and equivalents for the first quarter, giving it $1.2 billion in cash and short-term investments at the end of the quarter.

"The first quarter was solid," said Scott Kriens, chairman and CEO of Juniper during the conference call. “We’re very pleased with the results.”

Analysts were encouraged by Juniper's performance, especially for the core router market, which made up roughly 50 percent of the company's sales. Executives also said that 44 customers had bought all three M-series, T-series, and E-series products this quarter, indicating that customers are buying the full suite of routing products.

In terms of geographic mix, the company reported increased sales in Asia and Europe, with North American sales falling during the quarter. Asia accounted for 35 percent of revenues, up 4 percent from the previous quarter. Europe accounted for 27 percent, or a 14 percent increase from the fourth quarter. Revenues in the Americas were down 8 percent, to 38 percent of total revenues.

"European sales were up more than we had expected," says Erik Suppiger, an analyst with Pacific Growth Equities Inc. "That seemed to help push the revenues above our expectations."

LM Ericsson (Nasdaq: ERICY) and Siemens AG (NYSE: SI; Frankfurt: SIE) continued to be strong channels for Juniper, contributing more than 10 percent of the company’s revenues. These partnerships are likely what helped the company's business abroad during the quarter.

As for the coming quarter, CFO Marcel Gani said he expects revenues to be in the range of $157 million to $160 million, or flat to slightly up, sequentially. The company’s book-to-bill ratio was over one, which gives it a solid headstart for the June quarter.

CEO Kriens said the company was still focused on improving sales in the U.S. market, and he claimed the company is continuing to get traction with North American incumbent service providers. Juniper has won business with at least one regional Bell operating company (RBOC) in the U.S., BellSouth Corp. (NYSE: BLS). This quarter it announced Bell Canada (NYSE/Toronto: BCE) as a customer, too.

Juniper has also been rumored for the past few quarters to be close to a deal with Verizon Communications Inc. (NYSE: VZ). But lately such talk has waned, as some in the industry speculate that Juniper may have failed in its efforts to win the contract. Kriens did not comment specifically on Verizon.

Instead, Kriens focused his comments on the strong potential among wireless providers and cable operators. Although the CMTS product hasn’t been a large contributor to revenues, Kriens’s comments indicate that the company is making some progress in winning IP infrastructure deals with these service providers.

“When the dust settles we’ll find a market driven by those owning wireless facilities and cable plant,” he said. “We will also continue efforts with the incumbent community, too.”

While Juniper's earnings report was somewhat encouraging for the whole router market, analysts say there is still room for concern.

"Market stabilization may not be enough for Juniper's shares to maintain its lofty multiple," writes Mark Sue, an analyst with CE Unterberg Towbin, in an investor note after the earnings call. "At $8.41, Juniper shares are trading at 5.0 times our calendar year 2003 revenues excluding its net cash of $0.61 per share and 60 times our new calendar year 2004 EPS estimate of $0.14."

The company is also facing new competition from several startups that have recently launched products (see Caspian Comes Out and Procket Gets Unstealthy). One of them, Procket Networks Inc., announced NTT Verio Inc. as a customer. NTT Verio is also a customer of Juniper’s scaleable core router, the T640 (see Juniper Goes Terabit With the T640).

— Marguerite Reardon, Senior Editor, Light Reading

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