For Juniper, the problem ain't AI – it's supply

Juniper Networks continues to face revenue challenges as customers work through orders placed when the supply chain was backed up, but executives are hopeful that increased investment in AI will buoy its bobbing cloud business.

The networking company brought in $1.43 billion in revenue for Q2, which is a 13% year-over-year (YoY) increase and up 4% sequentially. Revenue exceeded expectations – analysts at Raymond James predicted $1.41 billion in revenue.

Cloud and service provider speed bumps

The cloud business was down YoY – revenue of $311 million amounted for a decrease of 6% YoY but an increase of 17% over Q1. Juniper CEO Rami Rahim predicts that growing AI adoption will "drive a meaningful uptick in traffic growth that is likely to benefit our Cloud wide area footprint over time."

"Cloud orders were meaningfully weaker than expected, Service Provider bookings were slightly lower than anticipated," said Mike Genovese, managing director and senior research analyst for Rosenblatt, in a newsletter.

Orders were down for both the service provider and cloud businesses as customers continue to work through previously placed orders, explained Genovese. The service provider business brought in $474 million, up 1% YoY and down 14% since Q1.

Supply chain challenges caused by the pandemic are now normalizing, but that shift means "vendors are experiencing lumpy order patterns and backlog reduction," wrote Raymond James Managing Director Simon Leopold in a newsletter.

"Juniper does not blame AI sucking oxygen out of the room for its lower outlook, which is a theory being debated as GPUs [graphics processing units] become elevated budget priorities," explained Leopold. "Juniper attributes the softer cloud outlook to digestion [of product orders] by both its hyperscale and cloud major customers."

Brighter skies for enterprise

Juniper's enterprise business, on the other hand, "delivered record revenue results" in Q2 following a "record performance" in Q4 2022, according to Rahim. In a call with financial analysts, he explained that the enterprise business accounted for 45% of Juniper's total revenue.

Enterprise segment revenue reached $646 million, up 38% YoY and an increase of 16% over Q1. Rosenblatt's Genovese explained that the enterprise business is an area where Juniper is gaining on Cisco.

Juniper's AI-driven enterprise segment had revenue growth of 63% YoY. The Mist AI segment also saw significant growth this quarter, with revenue up around 100% YoY.

"We were particularly encouraged by the momentum we experienced in our Enterprise business, which not only had a record quarter, but also represented both our largest and fastest growing vertical for a third consecutive quarter," Rahim said in a statement.

Looking ahead, Raymond James' Leopold predicts both Q3 and full-year results will be below expectations based on "weaker service provider spending and weakness from routing peer Nokia." Juniper's executive team has reduced full year growth to about 5%, down from a previous prediction of 9%.

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— Kelsey Kusterer Ziser, Senior Editor, Light Reading