Juniper Grows Sales but Sees Margins Shrink
Juniper Networks has reported a healthy increase in sales for its July-to-September quarter but seen a fall in profitability due to rising costs.
Revenues were up 3% compared with the year-earlier quarter, to $1.29 billion, while Juniper's operating margin shrank to 19.5% from 20.7% a year ago. The squeeze led to a 12.9% drop in net profit, to $172.4 million, over the same period.
Juniper Networks Inc. (NYSE: JNPR) competes against companies including Cisco Systems Inc. (Nasdaq: CSCO) and Arista Networks Inc. in the market for IP routers but has had its share of difficulties in the last couple of years, including a fight with activist investors, and appeared to lose some of its focus.
Analysts have recently sounded more upbeat when discussing the company's prospects, however. Before this week's earnings announcement, Heavy Reading 's Roz Roseboro said Juniper seemed to be getting "back to basics," while Michael Genovese of MKM Partners described the latest results as a largely "positive report." (See What Is Juniper Nowadays?)
Even so, there is still concern about Juniper's profitability. Outlining its full-year expectations, Juniper said it continued to see "pricing pressure and product mix fluctuations" but remained focused on making cost improvements.
Genovese thinks Juniper is facing a challenge from rivals in all parts of the world. "The risks are particularly high that GMs [gross margins] could continue to trend downward due to price competition from Chinese and European vendors, as well as domestic competitors such as Arista and Cisco," he said in a research note.
Juniper expects to generate revenues of about $1.35 billion in the fourth quarter, which would represent year-on-year growth of 2.3%, as well as a non-GAAP operating margin of 25%, compared with one of 26% a year ago.
Like its rivals, Juniper is trying to focus its business on opportunities around the growth of cloud-based networks. Its cloud vertical now accounts for nearly a fifth of total sales and is the fastest-growing part of the business, according to MKM Partners.
"One of the most important trends happening around us is the shift to the cloud, which is shaping our strategy and plays to Juniper's core competencies in building high-performance networks," said Rami Rahim, Juniper's CEO, in a company statement.
Juniper also made about $223 million in the switching market -- some $10 million more than analysts were expecting, according to Genovese -- but there was disappointment on the security front, with revenues coming in at $86 million -- about $7 million less than consensus expectations.
— Iain Morris, , News Editor, Light Reading