Juniper Searches for Virtual Growth

Fall is supposed to be harvest time for junipers -- but it has looked disappointingly barren for one.

Hit by spending cuts in some of its key markets, Juniper Networks Inc. (NYSE: JNPR) recently missed expectations for third-quarter profits and revenues and gave a bleak assessment of its fourth-quarter prospects. The vendor hopes its launch this week of a carrier-grade virtualized router -- which it claims is the world's first -- will reinvigorate its business, but acknowledges this is unlikely to happen imminently. (See Juniper Launches Virtual Routers, DevOps Capabilities.)

Speaking at a press conference in London on Thursday, Brad Brooks, Juniper's chief marketing officer, blamed a spending slump in North America and geopolitical challenges in the EMEA region for its present malaise, while giving investors little indication of when the outlook may improve.

"We don't have a lot of visibility at the moment into revenues," said Brooks when asked by Light Reading if late 2015 is too long to wait for a revenue recovery at Juniper. "We don't think the challenges are going to resolve themselves this quarter but it shouldn't be more than a few quarters."

Service providers in the US account for nearly half of Juniper's revenues, according to Morgan Stanley, while the EMEA region generates about a quarter. The vendor has also been struggling in the Asia-Pacific due to weak spending by operators in China and Japan.

Juniper's decline has been linked by some industry-watchers to the management changes that have taken place in recent years, including the influx of staff who previously worked at Microsoft, but Brooks -- himself a former employee with the software giant -- indicated that negative perceptions such as these will not persuade Juniper to alter its approach in any way.

"The reality is that leadership changes, and there is ebb and flow," he said. "We have a new chief executive in Shaygan Kheradpir as well as a new strategy based around building high-IQ networks and we're focused on that regardless of management changes."

Kheradpir, who joined Juniper in January from banking conglomerate Barclays, was supposed to have given the keynote presentation at Juniper's London event but cancelled on Wednesday afternoon, with Brooks drafted in as a last-minute replacement.

Nevertheless, when recently speaking with financial analysts during Juniper's third-quarter earnings call, Kheradpir had sought to alleviate concern that Juniper may struggle to maintain investments in product innovation -- and the more intelligent networks to which Brooks referred -- while it continues to slash costs. (See Juniper Plans More Cuts.)

The launch of the virtualized router, along with several other cloud and DevOps innovations that Juniper announced at the same time, may soothe investor anxiety. Yet the ongoing move into virtualization clearly carries a huge risk for a company that has built its business on the more profitable sale of proprietary networking hardware.

Moreover, there is still a worry that some of Juniper's customers -- including large financial organizations -- will not be ready to embrace technology trends such as SDN and NFV for several years, and that many organizations have yet to overcome security-related concerns about the cloud.

"It will be several quarters, not several years," Brooks insisted when quizzed about adoption of SDN and NFV. "And companies hosting services are thinking about security on a full-time basis -- it might seem counter-intuitive, but it's probably safer to use the public cloud than private ones."

Want to know more about the emerging SDN market? Check out our dedicated SDN content channel here on Light Reading.

A prospective customer for the virtualized router, branded the vMX, is pan-European wholesale and enterprise cloud and communications service operator Colt Technology Services Group Ltd , which is already making use of virtualization technologies but recognizes the need to make additional investments in this area.

"We've virtualized the CPE and the data center but not the connectivity between the data center and the rest of the environment," said Nicolas Fischbach, the director of strategy, architecture and innovation for Colt, who spoke at Juniper's event about his interest in the vendor's latest products. "That's where vMX makes sense to us."

Even so, if Juniper is to flourish in this brave new world, it will have to see off competition from the likes of Alcatel-Lucent (NYSE: ALU), Brocade Communications Systems Inc. (Nasdaq: BRCD) and Cisco Systems Inc. (Nasdaq: CSCO), which have similar ambitions.

Certainly the competitive environment is weighing on Juniper just now. "Juniper is likely to see a 'long winter' in telco edge and core router upgrades," said Deutsche Bank in a research note published after the vendor released third-quarter results.

Of course, if data traffic grows at a compound annual rate of 80% during the next three years, as Juniper expects, the demand for virtual networks could help offset margin pressure in the proprietary hardware business.

With investors jumpy, Juniper must hope the spate of virtual products innovation bears fruit soon.

The company's share price currently stands at $21.76, up slightly in early Friday trading.

— Iain Morris, Contributing Editor, special to Light Reading

danielcawrey 11/8/2014 | 12:31:37 PM
Finance Makes a lot of sense to me why financial organizations are risk averse to new virtulization technologies. 

I can envision how virtualized infrastructure may be more secure in the long run. But for now this is still very much an untested technology. Finance should take a wait and see approach on this. 
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