Juniper: No Surprises

Juniper Networks Inc. (Nasdaq: JNPR) didn't surprise anyone on its first-quarter 2002 earnings call after the market closed today. Revenues were in line with the revised expectations announced several weeks ago (see Juniper: Guidance Down, Stock Up), and guidance for the second quarter is that growth is expected to be flat.

Net revenues for the first quarter were $122.2 million, compared with $332.1 million for the same period last year, a decrease of 63 percent. Pro forma net income was $423,000 or $0.00 per share, compared with pro forma net income of $85.4 million or $0.25 per share for the first quarter of 2001.

Actual net loss for the first quarter -- which includes amortization of deferred compensation of $13.6 million, amortization of purchased intangibles of $1.6 million, and write-downs in equity investments totaling $30.6 million -- was $46.0 million or ($0.14) per share, compared with net income of $58.6 million or $0.17 per share in the first quarter of 2001.

"While we didn't report top-line numbers in line with our original expectations, we continue to be cash-flow positive and see solid margins," says Scott Kriens, chairman, president and CEO of Juniper.

After much speculation, the company revised its guidance on March 27, 2002, taking revenues down to $120-$125 million from its original guidance of $150-$155 million. As a result, going into today's conference call, investors were much less concerned about the bad news of Q1 and more focused on what the company would say about next quarter and the rest of the year.

"Most of the bad news has already been out there for a while," says one fund manager who didn't want to be named. "Now we're all just looking ahead and from the looks of things it doesn't look too pretty."

Indeed, just this week carriers were rumored to be slashing capital spending yet again. For example, WorldCom Inc. (Nasdaq: WCOM), which was the only service provider making up more than 10 percent of Juniper's revenue this quarter, is rumored to be lowering its budget by as much as $2 billion (see WorldCom to Cut Capex?). This could likely hurt Juniper in the coming quarters.

Ericsson AB (Nasdaq: ERICY) still remained a strong channel for Juniper in Q1, representing the other 10-percent customer. It was through the Ericsson channel that Juniper added several new customers this quarter, including Deutsche Telekom AG (NYSE: DT). And with Ericsson it introduced a router product specifically targeted at the wireless market, called the J20 (see Juniper Unveils 'Wireless Router').

So far, Juniper hasn't realized any revenue from its two newest products, the J20 and the G10, the cable head-end gear that comes from the Pacific Broadband acquisition. The company expects to begin recognizing revenue on those products next quarter, although Kriens says he doesn't expect that revenue to be significant until the second half of the year.

For the most part, investors will likely be mildly disappointed as Kriens provided little hope for the immediate future. Flat guidance was given for the second quarter and none at all for the rest of the year. Kriens explained to investors and analysts on the conference call that it is impossible to give guidance beyond Q2, due to the fact that service providers are only making out budgets in six-month increments.

As expected, the company did not reveal any specific details about its much anticipated new core router. Many analysts and industry observers expect that the company will announce this product with a customer by the first week in June, when the big Supercomm 2002 trade show takes place in Atlanta.

- Marguerite Reardon, Senior Editor, Light Reading
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