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Optical/IP

Juniper Upbeat on Q1 Earnings

Juniper Networks Inc. (Nasdaq: JNPR) executives bucked the industry trend in their first-quarter conference call, maintaining an optimistic outlook for sales.

"We are nimble and agile... and well positioned to prosper in these times," CEO Scott Kriens told analysts on a conference call this morning. "We have a day-to-day responsibility to deliver results. Low visibility in the short term doesn't change that."

Fiscal Q1 was a crucial one for Juniper (see Juniper Crushes Estimates in Q4). Quarterly net revenues were $332.1 million for its first quarter of 2001, up 12 percent sequentially and 420 percent year to year. Pro forma net income for the quarter was $85.4 million (25 cents per share), relatively flat from $84.6 million (24 cents per share) last quarter, but up sevenfold over the first quarter of 2000, when pro forma net income was $10.5 million (3 cents per share).

In remarks to analysts, Kriens said Juniper will rely on "focus and execution" to get through tough market times. The company, he said, will use a set of tactics based on clear assumptions about Juniper's position in the market.

That position, he said, is enabling "the new IP infrastructure industry," which is aimed at linking legacy networks more efficiently to high-speed optical backbones at the network edge. Kriens maintains this segment will grow in spite of slowdowns in carrier spending and deployment of optical gear.

"Service providers are not consumers," he said. "We look to businesses and individual customers. And there's a lot of evidence there to support the need for more bandwidth... I don't think we've yet even seen the impact of network applications [that can be built] with the bandwidth that's becoming available." As customers start to see the increased speed and efficiencies of faster IP networks, they'll demand more, Kriens says. The edge will drive growth in the core, and vice versa.

Despite this optimistic outlook, Juniper execs reiterated the litany of reduced visibility, and said revenues could be "lumpy" going forward. "We believe there is a 10 percent macro risk in our ability to [achieve projected] results," said CFO Marcel Gani. Nevertheless, by year end, Juniper's forecasting roughly 85 to 100 percent growth year to year. That should bring overall 2001 revenues to about $1.2 billion on the low end, given the year 2000 revenues of $673.5 million. This figure is roughly 11 to 18 percent lower than the figures Juniper had previously guided investors to expect.

Throughout his talk, CEO Kriens made an effort to reduce the impression of Juniper's reliance on any individual customer, regional segment, or even product. He boasted of Juniper's international growth, which represented 35 percent of overall revenues, and cited the growing diversity of Juniper's customer base and product sales.

For the first time, he said, no single service provider customer, including WorldCom Inc. (Nasdaq: WCOM), accounted for more than 10 percent of Juniper's revenues. Kriens also said that while sales of Juniper's high-end OC192-equipped chassis helped boost sales, there's also growth in the new lower-end M5 and M10 routers among customers seeking to link their existing legacy networks to IP backbones at the network edge.

Kriens acknowledged that one non-carrier customer, Ericsson AB (Nasdaq: ERICY), continues to draw a greater-than-10-percent revenue chunk. But he cited the ongoing relationship with Ericsson as vital to Juniper's future goals of growing internationally and penetrating the wireless market. He said Juniper's particularly excited about Ericsson's penetration of the Asian markets, especially in China (see Ericsson in China: Will Juniper Benefit?).

On the wireless side, Kriens said market research indicates that by 2003, every other device connected to an IP network will be wireless -- even though he later acknowledged that Juniper's revenues from sales of infrastructure for wireless nets are still "a small percentage" of overall sales.

All this was clearly aimed at proving that Juniper's fate isn't tied to the vagaries of carrier capital markets. And analysts seemed pleased. "It's good to see someone sticking to their numbers for a change," one quipped.

Still, going forward, nothing's guaranteed. On today's call, for instance, analysts questioned Juniper about possible price reductions brought on by competition from archrival Cisco Systems Inc. (Nasdaq: CSCO).

"We don't buy Cisco products, so we don't know what they're charging these days," Kriens said. And he maintains that price changes may not be a threat to Juniper's market position. "Customers don't make decisions based on price," he said. Instead, they look to the "quality of the network."

At midday, Juniper shares were trading at 45.57, up 2.81 (6.57%).

-- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com
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