A rotten smell has been hanging around the fruitily named Juniper Networks. In September 2018, its shares were trading at $29.97 in New York. By January this year, long before the coronavirus crisis, they had sunk 23%. Sales to service providers, which represent its largest market, had fallen 11 quarters in a row. To some analysts, Juniper looked ripe for plunder by companies harvesting newer and more software-based goods.

Yet amid the COVID-19 pandemic, Juniper's service provider segment is looking fresher than it has in a while. Yes, sales at that division fell again in the first quarter, and by a hefty 14%, to just $376 million, compared with the year-earlier period. But orders rose 4%. If that sounds like no great reason for excitement, it represents the first year-on-year increase since 2017. A service provider recovery may be in the works.

The order flow stems partly from a COVID-19-era traffic surge that, in the words of CEO Rami Rahim, "is straining many networks around the world." More encouragingly, it shows that efforts to rejuvenate the service provider business are at last bearing some fruit. New security and switching products have been sold on top of Juniper's traditional routing platforms. The customer base has grown.

Unfortunately, Juniper is still guiding for a mid-single digit decline in this market in 2020. Struck by COVID-19, some operators are likely to cut spending this year, said Rahim. Juniper's supply chain has also come under pressure due to component shortages and manufacturing constraints in China and Malaysia. Were it not for these, service provider sales would likely have declined by less than 10% in the first quarter, in line with Juniper's original outlook.

Worse still, the company's enterprise business, its second-largest unit, is turning bad. While sales grew 5% in the first quarter, to about $360 million, bosses shredded full-year guidance as customers shelved investment plans. "Enterprise order patterns are weakening, according to the company, due to COVID-19," said Michael Genovese, an analyst at MKM Partners.

Juniper remains confident it can improve its market share position in the enterprise segment, but its challenges here and in the service provider business will make it increasingly dependent on its relatively small cloud unit this year. Cloud sales in the first quarter rose 17%, to about $262 million, and Juniper anticipates modest growth for 2020. Demand from major cloud customers appears to have increased since the arrival of COVID-19, said Genovese.

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The main risk here is that customers halt plans to roll out new 400G technologies, deciding to fortify their existing networks rather than invest in the latest systems. The same danger threatens the new 5G mobile standard, with Norway's Telenor this week suggesting its 5G investments may be delayed in 2020. For Juniper, a lot seems to hinge on 400G: Genovese reckons the company's appeal to investors will only grow if it can pick up market share in the cloud sector during the 400G investment cycle.

Even with modest cloud growth, Juniper seems on course for another sales decline this year, after the 4% drop in 2019. That will put a further squeeze on profitability. Although total first-quarter sales were unchanged, at $1 billion, operating profits fell 8%, to $39.4 million, and net income was down a third, to about $20.4 million.

Unlike some other big vendors, Juniper has steered clear of major job cuts in recent years, and it finished March with 9,586 employees, up from 9,419 in December. But restructuring will be increasingly hard to avoid. In 2015, Juniper made about $537,000 per employee. By 2019, the figure had dropped to $472,000. Continued shrinkage may demand a response.

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— Iain Morris, International Editor, Light Reading