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Juniper Cruises Through Q1

Juniper Networks Inc. (NYSE: JNPR) delivered as expected in its first quarter, although some questions still linger as the company enters what's expected to be a growth year.

It's an interesting time for the company, because Juniper is finally reporting full earnings statements again after dealing with some issues around stock options back-dating. Meanwhile, another handful of top executives have left, reopening questions about the executive turnover Juniper has seen in the past few years. (See Juniper Catches Up, Writes Down and Will Juniper Be Burned by the Churn?)

For its first quarter, ended March 31, Juniper reported net income of $66.6 million, or 11 cents per share, on revenues of $626.9 million, compared with net income of $71 million, or 12 cents per share, on revenues of $595.8 million the previous quarter. (See Juniper Reports Q1.)

For its first quarter a year ago, Juniper reported net income of $75.8 million, or 13 cents per share, on revenues of $566.7 million.

Juniper's non-GAAP net income of 19 cents per share matched analyst expectations as tallied by Reuters Research .

On a conference call with analysts today, Kriens said Juniper shipped more than 200 units of its core routers, the T-series and TX, during the first quarter. Juniper also got its first smattering of revenues from the MX960, an Ethernet platform that covers a hole in the company's product offerings, particularly when it comes to IPTV and similar services. (See Juniper Antes Up on Ethernet (Finally).)

"In aggregate, the market that we participated in grew faster than we did last year," Kriens said. "We have the additional opportunity to participate, with our MX products, in a segment we were not nearly as active in, in 2006."

Analysts on the call pointed out some other touchy spots though. Nikos Theodosopoulos of UBS Investment Bank noted Juniper is losing money on its Service Layer Technologies (SLT) business, which consists mainly of the NetScreen acquisition and is a key part of Juniper's ambitions in the enterprise. For calendar 2006, the SLT group reported operating losses of $12.8 million on revenues of $479.9 million.

Kriens noted that Juniper sells routers to the enterprise, too, so a bad number from SLT isn't an indictment of the entire enterprise business. Still, he admitted that "there is a gap in the contribution from the enterprise business relative to that of the service provider business." Kriens hinted that Juniper expects the SLT group to get back to profitability this year.

The first quarter saw Juniper finally cash in on $50 million in revenues from Verizon Communications Inc. (NYSE: VZ). Those revenues were deferred a year ago –- apparently for esoteric bookkeeping reasons, as the products had already been received on Verizon's end. That amount was originally supposed to be $25 million to $35 million, but it grew to $40 million with Juniper's fourth-quarter earnings, and it's now apparently up to $50 million. (See Juniper Defends Core Business in Q1 and Juniper Talks Up 2007.)

That $50 million will make for some screwy numbers. Verizon represented more than 15 percent of Juniper's revenues in the first quarter, something that's not likely to happen again. And Kriens noted Juniper will probably get a market-share boost from analyst firms that track vendor revenues.

Juniper's forecasts for its second quarter -– revenues of $640 million to $650 million, and earnings of 20 cents a share –- were on par with Wall Street expectations.

Juniper stock was down $0.95 (4.5%) at $20.16 in after-hours trading on Monday.

— Craig Matsumoto, West Coast Editor, Light Reading

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chook0 12/5/2012 | 3:09:47 PM
re: Juniper Cruises Through Q1 andropat mentions:
>And they are trying to do a lot of it themselves instead of just going out and buying Extreme.

In hindsight, should they have just gone and bought Extreme? Or would that create even more headaches, as they tried to merge the NetScreen and Extreme products?
------------------------------------------
Extreme has been on the market for a long time. I guess people think it is just too expensive for what it is.

Extreme have done a pretty good job with what they have, but to my view it is not a product Juniper would make. It is a cheap architecture (which is often a good thing) but it has too many caveats to go anywhere near the core. I know of several organisations who are ripping Extreme because their requirements grew faster than Extreme could deliver.

I'm not saying Extreme is a bad product line. Compared to COGS it is a good product. It's just not a good fit for Juniper. Also, If I were building cheap switches these days I would not go down the custom ASIC route. Hardware for enterprise switching (at least up to the 100G range) is pretty-much off-the-shelf these days, and it is the software that makes it. So why would a company that has the best L3 software in the business want to buy a company that has hardware that can be pretty-much outsourced to Taiwan and software that isn't that great?

All I could see in that mix is destroyed shareholder value fo both sets of owners.

--chook
fishnchips 12/5/2012 | 3:09:47 PM
re: Juniper Cruises Through Q1 Yes! Converting to JUNOS...that is the key to everything and maybe the reason all the acquired product lines (Netscreen, Unisphere, etc.) are languishing IMO. They are blowing all their efforts trying to get everything to JUNOS which, if you didn't start there, probably amounts to new software. You bet on the grand unification theory but hopefully you haven't ceded all your market share by the time the formula is complete. And is JUNOS itself up to the task?

Does Juniper really have deep enough pockets to be rewriting everything for JUNOS and maintain a healthy roll-out of new features?? Cisco for years branded things IOS but under the covers it was not. Timing is everything. IOS XR had the advantage of hindsight and may hold up better to the grand unification theory. JUNOS is 1996 technology.

>)))>
lightreceding 12/5/2012 | 3:09:46 PM
re: Juniper Cruises Through Q1 Rumor is that Juniper is using merchant silicon for the new switches and they will be low end with only JUNOS as the differentiator, and what that will mean on a switch still isn't known.

Making these switches is costing Juniper a lot of real money instead of a stock and cash trade to buy a company. Rewriting to Junos is also taking a lot of engineering effort and impacting feature development for other products from what I hear.

While JUNOS was innovative at the time and got Juniper going it hasn't done anything to help the little J-Series routers which have almost no market share. Some of the Service Provider techies may like JUNOS but it is a much harder sell to the business decision makers at an Enterprise who need to see the ROI which is a hard case to make when their CCIEs need to get certified on JUNOS. Also a CLI operating system isn't a strong play in the Enterprise where you have people who managed many different platforms and might want a simple GUI and a shorter learning curve.

I know that Kriens likes to talk about how no one has won going from the edge to the core and that it is better to go from the core to the edge, but I'm not sure what he is on about there. He never explains it.

Competition is good. But there seems to be a lack of good competition. I think Juniper would be better off building innovative products around application delivery. Instead they seem to be content with following Ciscos lead and trying to take 10% of their established markets. But it really isn't so easy to repeat.

Juniper wants to be small enough to innovate but big enough to matter but it seems that they are too big to innovate and too small to matter. (I hope I am not hating on them.)

Cisco isn't all about monolithic IOS. They have caught up with IOS XR which has the same capabilities as JUNOS. In the mean time Cisco does seem to have a strategy that is about innovation in the application delivery space and about building a network that enables colaborative applications. I find that more interesting.
vferrari 12/5/2012 | 3:09:46 PM
re: Juniper Cruises Through Q1 All decent points. But there is something to be said that IOS-XR was built more modular like JUNOS and more JUNOS-like. They can be extended and modified easier going forward. Both hold the advantage over IOS of course. Just because it's been around for years doesn't mean that it's not keeping up with the times.

As for IOS-XR, Cisco will have to port it to other products other than CRS, keep IOS going or strand the older product lines eventually.
beowulf888 12/5/2012 | 3:09:45 PM
re: Juniper Cruises Through Q1 Materialgirl is correct that most network technology innovation (and therefore market growth) is migrating up the OSI protocol stack. But SPs won't be profiting from this shift unless they invest in their routing infrastructure. GOOG and AKAM have made a huge investement in their L3 infrastructure -- because all those web-enabled applications just can't function without routers.

Using CSCO as an example of why the "routing market is weak" is disingenuous, though. The company is huge! No company can maintain double-digit growth past a certain size. Routing isn't going away, and router sales will continue to grow. But the slow growth in the L3 space is a reflection of the *success* of that architecture. Routers are everywhere now.

--Beo

materialgirl wrote:
>>>>>>>>>>>>>>>>>>>>
Perhaps something else is going on. You can say that AVCI leaving the routing space, while JNPR infrastructure sales SHRINK year-on-year if you back out that $50M deferral from VZ, are isolated events. However, if you add these to CSCO's uninspiring 10-15% growth and compare it to 50%-plus growth for vendors like GOOG and AKAM, perhaps you get a different picture.

Meanwhile, service providers always hated the Internet and Layer 3 forwarding. As they move to packet infrastructure, it seems like they are re-creating SONET with Ethernet at layer 2-plus instead. They seem to prefer manual configuration of point-to-point links over over automated any-to-any forwarding. This also serves to weaken the any-to-any feature of the Internet, while increasing their hold on customers.

Bottom line, the routing market is weak overall. Service providers do not like them. They are looking at layer-two solutions. Perhaps the routing market itself is rolling over, and the Internet with it. Comparing IOS-XR and JUNOS could just be arranging deck chairs on the Titanic.
lightreceding 12/5/2012 | 3:09:45 PM
re: Juniper Cruises Through Q1 I do see the growing interest in PW3 and PBT but I don't think routing is dead yet. The growth in GOOG and AKAM is what got Cisco's attention and has them focusing on making the network intelligent for application delivery and has them buying collaborative applications like WebEx that will benefit from an application aware network, so I would not count Cisco out.
materialgirl 12/5/2012 | 3:09:45 PM
re: Juniper Cruises Through Q1 Perhaps something else is going on. You can say that AVCI leaving the routing space, while JNPR infrastructure sales SHRINK year-on-year if you back out that $50M deferral from VZ, are isolated events. However, if you add these to CSCO's uninspiring 10-15% growth and compare it to 50%-plus growth for vendors like GOOG and AKAM, perhaps you get a different picture.

Meanwhile, service providers always hated the Internet and Layer 3 forwarding. As they move to packet infrastructure, it seems like they are re-creating SONET with Ethernet at layer 2-plus instead. They seem to prefer manual configuration of point-to-point links over over automated any-to-any forwarding. This also serves to weaken the any-to-any feature of the Internet, while increasing their hold on customers.

Bottom line, the routing market is weak overall. Service providers do not like them. They are looking at layer-two solutions. Perhaps the routing market itself is rolling over, and the Internet with it. Comparing IOS-XR and JUNOS could just be arranging deck chairs on the Titanic.
tsat 12/5/2012 | 3:09:45 PM
re: Juniper Cruises Through Q1
You might have a point. I mean, there is not a single vendor that really has massive growth in routing products... is there?

Again, what is carrying all that YouTube traffic?

At the same time, I still don't see worldwide internet growth slowing anytime soon.

-tsat
backstabber 12/5/2012 | 3:09:44 PM
re: Juniper Cruises Through Q1 I would not go as far as saying routing is dead, but the segment is becoming commoditized, and facing competition from lower cost and simpler alternative implementations.

At the high end where the profit margins are more sustainable, top tier providers are still willing to shell out $ for the backbone infrastructure. Geography plays a role on this as well. As you move down the chain, cost pressures and network design simplicity start to dictate the decisions. If you look at companies like Level 3 at the mid tier, they are moving towards cheaper alternatives using mostly layer 2 equipment. This trend will continue if the premium charged for routers continue to be a high multiple of switches.

At the enterprise space, it's all down to "Keep it simple and save on cost". Just to clarify, companies like Google are not part of this enterprise since the requirements are closer to the mid-high end.

The pressure for companies like Juniper is then two-fold. How to sustain the margin they have been enjoying for routers, but at the same time, not lose the mid-lower end due to those high prices. With companies coming up with open source XORB alternatives, and switch prices extremely cheap, the mid-low end space will continue to dog Juniper especially since they try to move down the stream. At that level, the decision makers could care less about JUNOS or IOS as long as it works and is cheaper.
materialgirl 12/5/2012 | 3:09:44 PM
re: Juniper Cruises Through Q1 Dear Beaowulf888:
That is my point. I do not think GOOG buys L3 routers, as much as Force 10 switches. AKAM is Layer 4 or above. These guys are growing much faster than router sales would imply. Either router capacity is getting soaked up big-time, or something else is taking the load. The numbers just do not add up.

I think AVCI is on target, that the control plane is leaving the data plane, with forwarding pushed down while a super control plane is forming, splitting the router in two.
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