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.
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.)
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, , Editor-in-Chief, Light Reading