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Optical/IP

Juniper Meets, But Shares Slump

Juniper Networks Inc. (Nasdaq: JNPR) continued down the road of profitability and growth, reporting revenues of $493 million and non-GAAP earnings of 18 cents a share for the quarter ended June 30.

Revenues climbed 61 percent from the comparable period in 2004, and non-GAAP earnings beat analyst estimates by a penny, according to Reuters.

The company reported GAAP net income for the second quarter of $89 million or 15 cents a share, compared with a GAAP net loss of $12.6 million or 2 cents a share in the second quarter of 2004. Cash provided by operations was $166.1 million for the second quarter, compared to cash provided by operations of $119.0 million for the same period last year.

"We had another strong period of growth according to many metrics," said Scott Kriens, chairman and CEO of Juniper, on the conference call. "We added almost 2,000 people to the organization in the last year."

Prior to the start of the conference call, investors appeared to be looking for a bit more, as Juniper shares sold off sharply in after hours trading after the numbers were released. The stock was down $0.68 (2.56%) after the session close, changing hands at $25.85. It had risen $0.41 (1.57%) during the day session.

Kriens touted growth in VPNs, IP-based services, and enterprise routing as contributing to the numbers. He also stressed gains in enterprise networking, where Juniper is now going head-to-head with Cisco Systems Inc. (Nasdaq: CSCO). “We’re seeing enterprises deploying both our routing and security products in their network,” said Kriens.

Juniper appears to be developing a new spin on its entrance into the enterprise market, as Kriens spoke at length about the convergence of the enterprise and service provider market with the “virtualization” of services and traffic processing. He also hammed it up a bit with some corporate cheerleading. “Focus and execution is in the DNA here at Juniper,” said Kriens.

CFO Robert Dykes said Juniper's sales in the North America and EMEA regions showed strong growth, while sales in Asia declined. Cash and short-term investments at the end of the quarter totaled $1.9 billion, said Dykes. The company ended the quarter with 3,425 people, up from 3,100 at the end of the last quarter. Most of the new employees came from acquisitions, said Dykes.

Several analysts had questions about the company’s gross margins, which the company revised slightly down during the conference call.

Dykes explained the shift in gross margins due to “lumpiness” caused by shifts in the sales mix of different products and regions. For example, said Dykes, sales in Asia typically have lower margins, so when Asian sales declined in the second quarter, margins creeped up. But Dykes said other factors, such as the mix of different products, will cause margins to change. “We do expect that it will continue to be lumpy,” said Dykes. Gross margins are expected to be between 67.5 percent and 68.5 percent in the third quarter, said Dykes.

In providing guidance for the next quarter, Juniper executives expect $525 million to $530 million in revenue for the third quarter of 2005. The company expects 18 cents a share in non-GAAP EPS. The company expects $550 million to $560 million of revenue in the fourth quarter.

Siemens AG (NYSE: SI; Frankfurt: SIE) continued to be Juniper's largest sales partner, contributing more than 10 percent of Juniper's revenue.

— R. Scott Raynovich, US Editor, Light Reading

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light-headed 12/5/2012 | 3:07:47 AM
re: Juniper Meets, But Shares Slump Could it be that the financial world is finally catching on to juniper's "growth" strategy. They keep acquiring mature companies to cover their relatively mild growth in their original business. It makes their year over year growth look better than it really is (sounds like WorldCon). They are not deserving of 80+ P/E, more like 20-25. They are way over-valued and their profitability sucks. Profit margin is much lower than Cisco and much closer to companies like Alcatel and Foundry Networks. Check Yahoo finance if you don't believe me.
dwdm 12/5/2012 | 3:07:47 AM
re: Juniper Meets, But Shares Slump I would say these numbers look disappointing. It seems that they included the revenue of the companies they just acquired. Without them, the numbers would have looked pretty bad... I think this is why the stock is dipping..
js2003 12/5/2012 | 3:07:46 AM
re: Juniper Meets, But Shares Slump It is very clear from the Q2 report that JNPR original business is still a dominating factor in their growth.
BTW: JNPR has not acquired any mature company except netscreen. SO if you mean redline and peribit are contributing factor then you are way off.

I believe this company has lot of potential and will give CSCO tough time in enterprise market. Service provider segment do belongs to JNPR. They are clear leader in innovation and product stability and further more JUNOS rocks

My two cents :)
light-headed 12/5/2012 | 3:07:45 AM
re: Juniper Meets, But Shares Slump PS - forward P/E is a "voodoo" number. It has nothing to do with reality. It is the number that is used to justify outrageous P/E ratios... Besides Juniper stock would have to stay where it is TODAY so they could have a still higher than normal P/E of 29 a year and a half from now. In a year and a half the growth rate will probably be even slower. Let me put it even simpler, Warren Buffet and Peter Lynch would not touch this stock with a hundred foot pole. I am not dissing Juniper, They are a fine company with good products. Their stock is way over-hyped, over-priced and they want it to be that way so they can keep hiring.
light-headed 12/5/2012 | 3:07:45 AM
re: Juniper Meets, But Shares Slump Juniper acquired netscreen which was at ~400M per year in revenue and growing, the year before they acquired Unisphere which had ~200M in revenue. Their core business is growing but the addition of a mature company every year or so makes them look like they are doubling every year which they are not... this is an accounting trick. They also quote non-GAAP earnings. This is accounting fantasy - magic numbers. Non-GAAP is only used to make company numbers look good. This is why companies must report GAAP - Generally Accepted Accounting Principles.

Scott,

Don't know if i can make this simpler for you... JNPR is half as profitable as Cisco, little more than double Alcatel and nearly the same as Foundry. Does this justify their P/E ratio??? They are really growing their business at a slower rate but the acquisitons make it look sexier and Wall Street buys it, but maybe not for long... unless they make another big buy (sounds like WorldCon again). I am not saying that their finances are crooked just that the hyper growth is an illusion foisted on dimwitted investors (80-90% of the investing community).

Look at yahoo - key statistics - profitability:

Jnpr

Profitability
Profit Margin (ttm):11.38%
Operating Margin (ttm):19.81%

Cisco

Profitability
Profit Margin (ttm):23.11%
Operating Margin (ttm):29.98%

Foundry

Profitability
Profit Margin (ttm):9.75%
Operating Margin (ttm):18.93%

Alcatel

Profitability
Profit Margin (ttm):4.79%
Operating Margin (ttm):4.65%

Scott Raynovich 12/5/2012 | 3:07:45 AM
re: Juniper Meets, But Shares Slump Light-headed:

I checked out the numbers. Profitability growth is 100% Y/Y and the forward P/E multiple is 29, according to the very data you cite.

I'm having trouble seeing the stats that back up your point. Am I missing something?
js2003 12/5/2012 | 3:07:42 AM
re: Juniper Meets, But Shares Slump I dont know where do yo get your numbers ? but to me it looks like you are quoting numbers which nobody seems to get it.
people like Dykes , Wall street banker probably dont have access to your datebase ?
As far as revenue is concerned, netscreen reveunue per qtr is still the same as before the acquistion and Unisphere revenue has been doubled since.
Atleast, JNPR acquistions are bringing $$$ not like other companies acquistions which were only made to keep certian people rich due to internal connection. if you know what i mean !!!!!
light-headed 12/5/2012 | 3:07:41 AM
re: Juniper Meets, But Shares Slump Scott,

GO back and read what i said: Cisco overpays for acquisitons, Juniper is overpriced. Juniper may overpay for acquisitons as well but since I don't hold their stock I don't care. Yes, I agree that Cisco and Juniper dilution is bad for stockholders.
Scott Raynovich 12/5/2012 | 3:07:41 AM
re: Juniper Meets, But Shares Slump >As a cisco shareholder I am disgusted by them >over-paying for acquisitions and acquiring >companies to enrich "special" employees.

If you are a Cisco shareholder I would think you'd be happy if you think JNPR is overpaying. And as Cisco shareholder, you would also be concerned about the constant stock dilution Cisco incurs by issuing new shares. This is not a new problem -- it's the Silicon Valley way, isn't it?
light-headed 12/5/2012 | 3:07:41 AM
re: Juniper Meets, But Shares Slump Well apparently Wall Street has access to Yahoo Finance because Jnpr stock just went down $1.50 when they realized the growth was not explosive as imagined before. The netscreen business has grown since they were acquired last year by the way.

As a cisco shareholder I am disgusted by them over-paying for acquisitions and acquiring companies to enrich "special" employees. If I was a regular worker there I would be really un-happy about these special deals (BCN, hammerhead, etc.) unless I came through the acquisition... so yeah, I know what you mean there.
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