Will Juniper Miss Its Quarter?

With a little over two weeks left in the first quarter of 2002, investors question whether or not Juniper Networks Inc. (Nasdaq: JNPR) will be able to meet the flat revenue growth it predicted on its fourth quarter 2001 conference call in January.

Investors at the Merrill Lynch & Co. Inc. telecom investor conference yesterday said the company still has at least 40 percent to 45 percent of its business to do in the last two weeks of March, before the quarter ends. Such a "back-end loaded" quarter could be a tall order to fill, especially considering that many of Juniper’s key customers are continuing to cut their budgets.

Juniper CFO Marcel Gani, speaking at the conference yesterday, didn’t say much to comfort investors. Gani confirmed that the quarter would be heavily loaded into the last few weeks. In a break-out session after his presentation, he told several onlookers that many customers had put off buying gear earlier in the quarter. He said part of this could be attributed to the fact that many carrier budgets were still being finalized in January.

Some wonder if Juniper will really be able to pull through in these last weeks, especially since some of its key customers have again recently announced capital-spending cuts. For instance, Qwest Communications International Inc. (NYSE: Q) and WorldCom Inc. (Nasdaq: WCOM), which are both struggling with debt and accounting issues, have announced more spending cuts as they attempt to get their balance sheets under control (see Qwest Sees Light at End of the Tunnel and WorldCom Accounting: What's Up?).

Gani alluded to these cuts in his talk. "We don't comment on the quarter," he said. "There's no new information, carriers are still tightening their belts and investors are gloomy."

Gani did tell investors that he didn’t expect any big surprises in the quarter. Still, his words left many investors guessing and speculating. “I’d say you could take what you want out of his comments,” said one fund manager who didn’t want to be named. “If you’re short on the stock then he was negative. If you’re long, he was positive.”

In recent weeks, though, anxiety about Juniper's numbers appears to have risen in investment circles.

Back in January, when the company reported its disappointing Q4 figures, CEO Scott Kriens told investors he expected revenues to remain flat -- around $150 million for the quarter (see Juniper Meets Lowered Expectations). But word began circulating several weeks ago that Juniper had a terrible January, igniting rumors that the company would miss its numbers in Q1 of 2002. On the other hand, according to several sources, business picked up in February.

Gani also said that international sales will continue to be down from its historical level of 35 percent of total sales. It was the unexpected drop of the international sector to 24 percent that prompted the company’s shortfall from its original guidance last quarter.

“We won’t see a dramatic change in the international market this quarter, but our goal is to work back towards the 35 percent revenue this year,” said Gani. “Europe was a disappointment last quarter, but now others are saying Asia is still strong, so we will see if that is true. Even in North America all the deals are smaller than I would like them to be.”

But what about big wins like the Deutsche Telekom AG (NYSE: DT) deal announced on Tuesday and the new edge router Cable & Wireless PLC (NYSE: CWP) wins announced earlier in the quarter? While these are important wins for the company, much of the revenue from these deals was already recorded in the fourth quarter, according to Gani.

This morning, ABN AMRO downgraded the stock from Add to Hold and said it only expects Juniper to post first-quarter revenue of $110 million and second-quarter revenue of $100 million. It also said that Juniper will likely fall short of its second-half revenue guidance of $305 million to $315 million. Instead, it will likely post revenues of $250 million in the second half of this year.

Shares in the company dropped $1.42 (10.96%) to 11.54 today.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com