Juniper's 'Disappointing' Q1 Dogged by Slow Telco Spending

It was a slow and bumpy start to the year for Juniper -- in large part because of weak telco spending in the first quarter -- but the vendor says it's expecting better to come in the second half of the year.

Juniper Networks Inc. (NYSE: JNPR) had already issued a profit warning earlier in April. Revenue for the first quarter rose 3% compared to last year -- to $1.098 billion -- delivering earnings per share of $0.37. Revenue dropped 17% quarter-on-quarter, however, showing how dependent Juniper is on the seasonal spending trends of service providers.

"Disappointing" is how CEO Rami Rahim described the results in a statement Thursday afternoon.

On Juniper's first-quarter earnings call, executives noted that some expected orders from operators in the US and Europe had been delayed. Such delays are significant for the vendor, as its top ten customer list comprises five telcos, four cable or cloud operators and one enterprise. Most of these major customers are in North America: In the first quarter, only three of its top ten customers were located outside the US.

Rahim was asked on the call if the weaker operator capex spend in the first quarter could be a trend for the year. "It's fair to say that the telecoms operators -- [in the] US and maybe in other places around the world -- are off to a slow start this year," the CEO said.

"The telco space is just a little bit complicated right now as they evolve their architectures," he added. Carriers are running their networks "hot" -- taking a wait and see attitude to expected updates -- as they evaluate "new network architectures." This ranges from how to deploy and manage virtualization technologies to the updating of the mobile edge and supporting packet and transport infrastructure.

In order to address the changing landscape, the CEO said Juniper can do a few things to maintain its sales numbers. Diversifying further into the cable and cloud operator markets will help, while focusing on SDN orchestration and switching/routing in the telco market as network architectures evolve should keep the operator market chugging along.

Rahim was asked several times if he thought there could be further delays to operator spend, but he stuck to his guns, saying: "We are much more confident that those deployments are going to happen in the second quarter and beyond."

Juniper's acquisition of BTI Systems, which closed on April 1, should also help boost its share of service provider wallets, noted the vendor's executives, but in the short term the contribution to revenues is only going to run at between $10 million and $15 million per quarter. The purchase is expected to have a neutral impact on earnings for the year. (See Juniper Closes BTI Acquisition to Beef Up DCI and What Juniper Paid for BTI.)

Juniper's guidance is that revenues will be around $1.19 billion for the second quarter.

In after-hours trading, Juniper stock was down $0.43 -- or 1.81% -- at $23.39.

— Dan Jones, Mobile Editor, Light Reading

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