Juniper: Guidance Down, Stock Up
That appears to be the reaction to Juniper Networks Inc.'s (Nasdaq: JNPR) announcement last night that it expects revenues for the quarter ending March 31 to be approximately $120-$125 million, down from its original guidance of $150-$155 million.
The recent buzz on the street, as reported here just two weeks ago, had been that Juniper would have a hard time meeting its guidance (see Will Juniper Miss Its Quarter?). That may be why, when the news actually came out, the stock rose 0.98 (5.5%) to 12.58 in midday trading today.
“There was no mystery here whatsoever," says Salomon Smith Barney analyst Alex Henderson. "People had to know that this was coming,” he says, pointing out that most financial analysts had already cut their earnings estimates for the company. "We first cut our estimates to $128 million in mid-February. I don’t think the street was looking for $150 million.”
The company expects that pro forma, fully diluted earnings will be slightly above breakeven. Its earlier guidance projected earnings of 3 cents a share. The company blamed cautious spending by its service provider and carrier customers for the expected reduced revenues.
“Juniper’s pre-announcement should not have been a surprise, we think, given negative carrier newsflow, capex cuts by IXCs… and the company’s emerging presence in the cable and wireless segments,” said a note published by Morgan Stanley Dean Witter & Co. analyst David Jackson this morning. The research note emphasized that recent weakness in the company’s stock had already sent a warning signal that Juniper might lower guidance.
Others say that Juniper’s lowered guidance was actually a positive surprise, not dropping as low as many had expected.
Still, some traders remain skeptical of the company's prospects for next quarter. "The Ericsson AB (Nasdaq: ERICY) deal was a substantial part of their revenue in that quarter and that's not a sustainable thing," said one hedge-fund manager who asked not to be named. "We think there is a psychological component to this stock: People buy it when it goes down because they remember when it was $100 per share."
And while the price of Juniper’s shares steadily rose today, several financial consultant firms were downgrading the stock. This morning, Needham & Co. downgraded Juniper stock from Strong Buy to Buy, and Wedbush Morgan downgraded it from Buy to Hold.
Still, most observers agree that the lowered guidance doesn’t reflect badly on Juniper’s business per se, but is rather a symptom of the slowdown affecting the entire industry. “Juniper’s getting clipped by the same blade that caught [among many others] Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT),” says Smith Barney's Henderson. And according to the Morgan Stanley note, the revised guidance was driven by deployment delays and carriers' hesitancy to spend money, not by competitive losses.
This was also the message that Scott Kriens, chairman and CEO of Juniper Networks, tried to convey on a conference call discussing the lowered guidance yesterday. He said that although the company faces “conditions that test both our discipline and our collective patience… [it is] continuing to generate cash in a market where few others can say the same. We’re doing it by remaining committed to our carrier and service provider customers."
During the quarter, the company announced several new customers and deployments, among others Deutsche Telekom AG (NYSE: DT), adding to an already broad customer base. The company also announced that positive cash flow from operations is expected to be in the range of $5 million to $10 million.
As for the company’s staff, Kriens' claim that Juniper will not be restructuring any time soon is good news. "When these markets turn around, it’s not possible to double the engineering staff and catch up,” he said. “Our product lead… is going to be protected. Period.”
— Eugénie Larson, Reporter, Light Reading