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Juniper Dusts Off Its Eraser

Juniper Networks Inc. (NYSE: JNPR)'s bottom line is set to take a hammering by the ongoing stock-options scandal and a probable goodwill writedown, company officials announced during the vendor's second-quarter earnings call late Wednesday afternoon. (See Juniper Reports Earnings.)

An internal audit committee "has reached a preliminary conclusion that the actual measurement dates, for financial accounting purposes, of certain stock option grants issued in the past differ from the recorded grant dates of such awards," CEO Scott Kriens said on Juniper's call with analysts late Wednesday.

In other words, the audit, which is ongoing, uncovered evidence of possible back-dating. Juniper is one of several companies being investigated for possibly back-dating stock options, and some of those companies have said they'll restate earnings -- Broadcom Corp. (Nasdaq: BRCM) being among the latest. (See Backdating Could Bite Juniper Execs and Broadcom to Restate Earnings.)

Juniper didn't mention restatements, but Kriens did say the company might have to take charges to its earnings. But it's hard to say what will happen as Juniper hasn't heard much else about the committee's findings.

"They have not elaborated beyond that," Kriens said. "We don't know, until they do, the extent of these charges and whether or not they will be material."

That's not the only adjustment in Juniper's future, though. Due to the stock's decline in the past quarter -- to $14.14 per share as of yesterday's closing, from $19.12 on March 31 -- Juniper officials said they're re-evaluating the company's $4.9 billion in goodwill.

On the call, CFO Robert Dykes said that will likely result in a $1.3 billion writeoff in the second quarter -- possibly more, if Juniper's stock continues to drop. Juniper isn't filing its full second quarter report until the stock options audit is completed.

Goodwill adjustments -- usually the result of acquisitions whose value drops -- don't affect a company's cash holdings, but they get docked from a company's net income, according to generally accepted accounting principles (GAAP).

Oh, but there's more: Juniper gave revenue forecasts that appear short of analyst expectations. Juniper predicted third quarter revenues of $570 million to $575 million and fourth quarter revenues of $585 million to $595 million. A Reuters Research tally has analysts predicting revenues of $580.9 million and $620.4 million, respectively, for the two quarters.

Despite this, Juniper's stock edged up in after-hours trading Wednesday night. Having closed at $14.14, the share price climbed by 17 cents, more than 1 percent, to $14.31 after the earnings call.

That lift was likely the result of the outsourcing deal Juniper announced at 6pm Eastern with contract manufacturer Flex (Nasdaq: FLEX), and news that its board has authorized a $1 billion share buyback. (See Flextronics Wins Juniper Deal.)

For its second quarter, which ended June 30, Juniper reported revenues of $567.5 million, on par with the $567.2 million predicted by analysts polled by Reuters. Revenues were up slightly from the first quarter figure of $566.7 million.

Juniper didn't report net income due to the stock-options issue. Analysts had expected GAAP net income of $88.2 million, or 15 cents per share, according to Reuters.

For its second quarter a year ago, Juniper reported GAAP net income of $89 million, 15 cents per share, on revenues of $493 million.

Siemens AG (NYSE: SI; Frankfurt: SIE) represented approximately 15 percent of Juniper's second quarter revenues, and Verizon Communications Inc. (NYSE: VZ) represented 10 percent, officials said. That doesn't include $25 million to $35 million in Verizon revenues being deferred into 2007, as Juniper noted last quarter. (See Juniper Defends Core Business in Q1.)

— Craig Matsumoto, Senior Editor, Light Reading

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Metrorider 12/5/2012 | 3:47:58 AM
re: Juniper Dusts Off Its Eraser Juniper on 29th November 2005 had announced that it had moved to the # 2 market share position for high-end enterprise routers.

Does anybody have any idea how they stand currently in the enterprise segment and are they in a postion to gain more market share from rival Cisco?
matahari 12/5/2012 | 3:47:56 AM
re: Juniper Dusts Off Its Eraser It would help to know which products are included in Juniper's measurement of market share. For example, is the M-series (M7i/M10i) included? Or is it just the J-series? How about Netscreen, Peribit and the now disbanded Kagoor?
lightreceding 12/5/2012 | 3:47:53 AM
re: Juniper Dusts Off Its Eraser Juniper doesn't break it out but my guess is that it would be mostly M-Series for routing, as that is their biggest seller and T-Series is too big for Enterprise, with Netscreen making up most of the remainder of the Enterprise share. J-Series is going right up against Cisco in one of their strongest markets with little value add. Juniper recently announced the SSG, which is a Netscreen firewall with routing, but it is too new to have done much. Peribit and Redline are in markets with fairly low total market opportunities. Kagoor is a niche play and not getting much visibility compared to Cisco. Juniper is late to update their products with 10G just recently added and no Ethernet Switch and the routers are over ten years old. It is interesting that Juniper management chooses to allocate $1B to stock buy back instead of to product innovation. That is a short term, low impact play to please shareholders.
jasanz 12/5/2012 | 3:47:52 AM
re: Juniper Dusts Off Its Eraser ...to appease shareholders or to balance the stock-options paid to the execs ..."a la Cisco"?...
lightreceding 12/5/2012 | 3:47:51 AM
re: Juniper Dusts Off Its Eraser what ever the motivation, it gets down to bolstering the stock price which appeases shareholders. Maybe they are offsetting options to execs, maybe they are trying to hold off a buyout, maybe they are just reacting to the more than 50% drop in the last 52 weeks.

From the press release "Our commitment to our shareholders is to continue to grow revenue, earnings and cash and as a result enhance the long term value of Juniper," commented Scott Kriens, chairman and CEO, Juniper Networks. "Consistent with that commitment the Board of Directors has concluded that a significant stock repurchase program is appropriate."

But it seems that this is a short term play to boost the stock price so that the management team can hold on to their jobs. The long term play would be to develop new products and make acquisitions. $1B would buy just about every acquisition Juniper as made, except for Netscreen, which was inflated. Given the $8B market cap and almost 600M shares outstanding $1B might boost the stock price by under $2 which is not much compared to the $13 drop, representing $7B in market cap, in the last 52 weeks.
chook0 12/5/2012 | 3:47:50 AM
re: Juniper Dusts Off Its Eraser lightreceding: "what ever the motivation, it gets down to bolstering the stock price which appeases shareholders. Maybe they are offsetting options to execs, maybe they are trying to hold off a buyout, maybe they are just reacting to the more than 50% drop in the last 52 weeks. "

I think it has more to do with the fact that Juniper has been criticised by analysts for sitting on too much cash and having a lazy balance sheet. Either you should use the cash or you should return it to shareholders either through dividend or buyback. Trouble with using the cash is that you can't just throw that much cash into R&D overnight and expect to get value back.

As you pointed out in your message, the effect on the stock price is not exactly negligible, but not outstanding either.

Perhaps an interesting question would be why JNPR chose buyback rather than a dividend as the method of returning cash. Juniper has produced more cash than they can efficiently reinvest for some time now.

--chook
desiEngineer 12/5/2012 | 3:47:50 AM
re: Juniper Dusts Off Its Eraser How do they finance a buyback? Surely they aren't going to use up cash! It seems to me they have about $1.8b of reasonably liquid assets, and about $1.b of debt+payables, so it wouldn't be prudent to be spending $1b in a buyback, would it? At least, to someone like me who has never had to make a decision like that, it doesn't :-)

The previous poster estimated a potential return on the investment of that kind of money. Do they assume that the stock value is strong enough that acquisitions can be made through stock dilution?

Just curious.

-desi
lightreceding 12/5/2012 | 3:47:45 AM
re: Juniper Dusts Off Its Eraser Dividends are seen as something that mature companies do. Juniper still talks about being a growth company. They don't want to be grouped with traditional companies. They still talk about new products and new markets.

It may be true that the analysts are telling Juniper to do something with the excess cash, but a buy back is still a short term fix. Cisco also did a buy back after their stock got hammered, but they still have about $10B in the bank.

While development takes time at least you have products to sell in a year or two that will grow the company long term. The effect of a $2 bump can be absorbed by the market in weeks and is gone forever and then where is the cash to grow the company?

Juniper has been slow to build out the portfolio and they are allowing products to age. They are still the most viable competitor to Cisco but Cisco is catching up in Core Routers and is ahead in edge and branch routers and in security.

If Juniper hopes to continue to take a bite out of Cisco they need to spend more on development and acquisitions even if the return takes time. Their stock is down over almost 50% in the last 52 weeks and spending $1B to boost it $2 won't help in the long run.
startup_shutup 12/5/2012 | 3:47:39 AM
re: Juniper Dusts Off Its Eraser >> Their stock is down over almost 50% in the last 52 weeks

I am expecting to go below 10 soon ....
startup_shutup 12/5/2012 | 3:47:38 AM
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