Now Capex Crunch Hits Juniper

The coming earnings season could be painful for the communications networking vendor community as a slowdown in demand for network systems starts to hit revenues and profits, with reduced demand from US telcos in particular forcing vendors to reassess their current financial forecasts.

A number of telecom technology suppliers have already signaled a slowdown. (See Spirent Slammed by Slowdown, Capex Crunch Hits EZchip and Lower Revenue in Europe Alters Adtran's Q3.)

Now Juniper Networks Inc. (NYSE: JNPR) has announced that it expects to report third-quarter revenues of $1.11 billion to $1.12 billion, down from the $1.15 billion to $1.2 billion it had anticipated: That's a potential shortfall of up to $90 million.

The IP and SDN systems vendor noted that the dip is "primarily due to lower-than-anticipated demand from service providers, particularly in the US." (See SDN's Progress Is Worth Debating and Juniper Gives OpenDaylight Some Loving.)

The impact on Juniper's earnings is somewhat mitigated by its recent cost-cutting measures, with non-GAAP earnings (after one-time costs) expected to be in the range $0.34 to $0.36, instead of the range $0.35 to $0.40 previously cited. (See Juniper Cuts Headcount by 6%, Axes ADC .)

Even so, investors took fright. The news, issued after the US stock market closed Thursday, sent Juniper's stock down more than 6% to $19.64 in after-hours trading.

And the news is having a knock-on effect: Alcatel-Lucent (NYSE: ALU)'s share price is down 14% in pre-market trading Friday morning to $2.44, while Cisco Systems Inc. (Nasdaq: CSCO)'s share price is down 1.3% in per-market trading to $23.88, though there are other factors impacting the IP equipment giant's stock. (See Report: Cisco Starts Reorg, Layoffs.)

Need to know more about the management of network assets and applications in an SDN and NFV environment? Then check out the agenda for OSS in the Era of SDN & NFV: Evolution vs Revolution, November 6, at the Thistle Marble Arch Hotel, London

MKM Partners managing director Mike Genovese stated in a research note that his firm had already downgraded Juniper's stock earlier this week (from "Buy" to "Neutral") due to "anticipated Service Provider capex weakness in 2H14 and major customers increasingly demanding price concessions as the competitive landscape for Edge Routers fundamentally changes."

Genovese added that pressure on the router vendors may continue in 2015 due to the impact of virtualization on the edge router market, the trend towards the integration of packet processing in optical platforms, and a continuation of the pricing squeeze.

Juniper will announce its full third-quarter results on October 23.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

mhui0 10/12/2014 | 1:11:18 PM
SDN still needs proper hardware to run on SDN still needs proper hardware to run on.

If time-critical functions need to be done in hardware, then they're most likely already done like that on Juniper's routers, and it's just a matter of presenting an efficient interface between that hardware and 3rd party SDN software.

There's also the requirement that the electronics are well designed, so they won't fail sporadically, or won't fail at all. Not all routers and switches have high quality electronics.
go8971236 10/11/2014 | 9:11:52 AM
Re: 2015 crunch time Is the implication that NFV/SDN are hurting router sales? I really dont think so. The spend on NFV is noise, and it cant technically do a high end router anyway
TomNolle 10/10/2014 | 11:25:41 AM
Re: 2015 crunch time I think that even the best of the network equipment vendor strategies (ALU, IMHO) are still not really directed optimally.  If you believe in incremental revenues out of SDN or NFV you have to believe that the technologies will be used to create new and different services, not just cheaper versions of current ones.  In NFV, that means working on how you'll encourage development and deployment of the broadest range of VNFs in the broadest range of missions, but the focus seems to be on very narrow services like service chaining (in carrier Ethernet, which is corporate-user-directed) and IMS (which is multi-tenant and thus more a cloud service than an NFV service.  In SDN, new services mean new applications north of those northbound APIs, designed to do stuff in forwarding packets that's beyond current switching and routing.

Even the lower apple for network vendors, improving operations efficiency and time-to-revenue on new orders, is still not supported broadly or with much insight.  Given that we are already seeing vendors take a hit on declining capex, I think it's a good question whether they can turn this around in time.
[email protected] 10/10/2014 | 11:07:00 AM
Re: 2015 crunch time Amen to that, Tom.

I guess the question is - can they deliver 'carrier grade' SDN/NFV in time to save themselves and their telco/service provider customers?
TomNolle 10/10/2014 | 10:36:22 AM
Re: 2015 crunch time I think the key for vendors will be using SDN and NFV to open new service revenue opportunities for their buyers, rather than using them to reduce costs.  No matter how you cut it, cost reduction for vendors means less revenues.  They have to come up with ways of getting their customers MORE revenues so they can justify more infrastructure investment.
DOShea 10/10/2014 | 10:19:20 AM
Re: 2015 crunch time It could be a rollercoaster with an exceptionally steep decline. If Genovese's observationbs are correct, we're at the starting point when virtualization completely revamps (some might say "devastates") the edge router market.
[email protected] 10/10/2014 | 8:04:37 AM
2015 crunch time So 2015 could be the year when new capex decisions are made -- and then we'll see which of the IP gear vendors have adopted the most suitable SDN.NFV strategy and cling on to a decent part of their current business.

Prepare for the rollercoaster....
Sign In