Juniper might not yet have answered all of its critics but a solid set of quarterly earnings from the Californian equipment maker, published late yesterday, is helping to win them over.
Beating analyst estimates by about $20 million, Juniper Networks Inc. (NYSE: JNPR) flagged revenues of about $1.25 billion for its third quarter, 11% more than in the same period last year, and saw net income soar by 91%, to $197.7 million. Buoyed by that performance, the company's share price rose by more than 5% on the New York Stock Exchange during early-morning trading on Friday.
Despite both revenue growth and significant cost control, however, Juniper isn't yet allaying analyst concerns that future headwinds around its ability to compete in the virtualized world will require some kind of restructuring on its part.
Sales appear to have been driven by a significant improvement in business outside the US as well as a diversification of the customer base away from the incumbent operators: Cloud providers are figuring ever more prominently in Juniper's activities.
Although Juniper's security offerings look far more competitive than in quarters gone, success at the switching business was the main reason for the revenue uplift, according to George Notter, an analyst at Jefferies, thanks to demand among enterprises as well as service providers.
"New product development may also be driving some of the strength in this business right now," said Notter in a research note. "The product pipeline looks very strong."
Examples of that include an enhanced version of the PTX router that is set to begin shipping later this year, but Juniper's Contrail-branded SDN product is also gathering momentum, according to Jefferies, with Juniper adding four new Contrail customers in the third quarter, including AT&T Inc. (NYSE: T). '"We presume that Contrail remains quite small from a revenue perspective [but] … it's probably becoming a more important piece of the larger Juniper network solution," said Notter.
All this seems testament to the progress Juniper has made under Rami Rahim, who took the CEO reins late last year following the turbulent spell during which Shaygan Kheradpir was in charge. (See Turmoil at Juniper as CEO Quits.)
Juniper's reputation has clearly recovered since Rahim assumed control: According to a recent survey of 150 North American service providers carried out by Heavy Reading, Juniper is now the most trusted vendor when it comes to next-generation infrastructure and services.
As the net income numbers suggest, Rahim has also been running a tight ship, attributing a sharp increase in Juniper's operating margin -- up to 20.7% (on a GAAP basis) from 15.3% in the year-earlier quarter -- to a strong focus on cost controls.
On a sales level, Juniper expects to make further improvements in the fourth quarter, guiding for revenues of between $1.27 billion and $1.31 billion. That beats a forecast of $1.26 billion issued by MKM Partners, another analyst group, and would be about 17% more than Juniper made in the fourth quarter of 2014.
Despite all this, doubts about Juniper's near- and long-term prospects still linger.
For one thing, there is a lot of uncertainty about the outlook for router spending by the biggest US operators. "We do not think the stock can work much higher from here if US Tier 1 demand does not significantly improve, and we do not think it will," said Michael Genovese, an analyst with MKM Partners.
Currently priced at about $31.40 on the New York Stock Exchange, Juniper's stock has risen by an impressive 54.5% since this time last year and is up 23.8% over the past month.
The strategic push to address SDN and cloud opportunities also raises questions. "Juniper's strategy to diversify and focus on the stronger areas of networking [is] a positive," said Simon Leopold, an analyst with Raymond James Equity Research. "However, the threat of white-boxing and virtualization may prove to be challenging hurdles over the longer term."
Although its SDN and NFV capabilities are highly regarded, Juniper obviously lacks the scale of a Nokia or Alcatel-Lucent -- let alone a tie-up between them.
For that reason, speculation has continued to swirl regarding the possibility that Juniper is looking for a buyer, with Sweden's Ericsson AB (Nasdaq: ERIC) seen as a potential candidate. (See M&A Speculation Swirls Around Juniper and Ericsson Slumps on China, Russia Weakness.)
An alternative might be a delisting of the company: Going private would, of course, give Juniper a lot more flexibility to restructure the business and make big strategic moves away from the spotlight of the public markets.
"We are so focused right now on putting the finishing touches on what is a huge product pipeline," said Rahim during his earnings call with analysts when asked whether Juniper might itself be considering takeovers, according to a Seeking Alpha transcript. "I honestly do not want to distract the team too much from that right now."
— Iain Morris, , News Editor, Light Reading