Juniper’s New Product Launches Could Help Revive Declining Product Sales

Juniper (NYSE:JNPR) introduced a range of new products at its 2015 Innovation Showcase earlier this month, with a focus on the Internet of Things. The company’s new products are largely aimed to help customers transform their networks to manage and capitalize on the growing opportunities of the connected world. The growing ubiquity of the Internet, with the expansion of wireless connectivity coupled with the explosion of new devices, has led to a massive rise in content and network traffic. Add to this the expansion in cloud computing and software defined networking (SDN), and the need for high performance and intelligent networks becomes apparent. Juniper’s new product offerings – an open and scalable switching platform, a new core router architecture and an improved firewall solution – should help the company gain new clients and effectively compete with major players such as Cisco (NASDAQ:CSCO) in the rapidly transitioning networking space. ^[1]

Juniper’s three divisions – Routing, Switching and Security – all registered double-digit declines across geographies in Q4 2014 over the same period last year. For full year 2014, Switching was the only division registering growth (13%), while Routing and Security reported a decline of 4% and 18% y-o-y, respectively. The company’s overall product sales in 2014 declined by 3% to $3.4 billion. To counter declining product sales, the company stated that it was moving away from point-based solutions towards integrated solutions covering a gamut of problems across switching, routing and security domains. The latest product launches seem to be in line with the company’s plans to offer integrated networking solutions and should help in improving its top line going forward. ^{[2] [3]}

Our $25 price estimate for Juniper is about 10% ahead of the current market price.

See our full analysis of Juniper Networks

Improved Core Routing Platform

The company unveiled a new and optimized core routing platform with its new silicon chip, updates to its PTX series of routers and SDN capabilities. Juniper’s new ExpressPlus chipset is capable of performing more than 1.5 billion filtered operations per second and can drive 5x 100G (Gbps) interfaces. The 28 nanometer chip leverages 3D memory architecture and its physical footprint is 20 times less than previous solutions, thereby delivering four times the performance and three times efficiency gains over Juniper’s existing Express chipset.

The company’s updated PTX series core routers – PTX5000 and PTX3000 – feature the new ExpressPlus chipset and have full IP and MPLS (Multiprotocol Label Switching) functionality which provides scalability and ease of deployment, and also lowers costs. ((Press Release, Juniper, March 11 2015)) We expect the company’s new products to offer a significant challenge to rival players and help improve its declining share in the over $3 billion global core router market.

In the first half of last year, Juniper’s routing sales grew in high-single digits over the prior year period, as sustained high demand for data due to the proliferation of mobile devices and high-quality video content on the web ensured consistent capital spending on networks. However, sluggish demand from U.S. carriers in both the core and edge router market resulted in Q3 and Q4 2014 routing sales witnessing a decline of about 12% and 15%, respectively. Since service providers account for more than two-thirds of Juniper’s revenues, any weakness in demand reflects significantly on the company’s top line performance.

By our estimates, core routers account for less than 25% of the overall router market and about 30% of the service provider router market. Therefore, even if the company manages to arrest its declining core router market share going forward with these new products, it will likely not be able to impact the company’s valuation by more than 3-4%. However, considering that Juniper is now increasingly focusing on delivering integrated solutions and has made significant advancements in its silicon chipsets and SDN capabilities, we expect certain share improvements across its routing division going forward, including the edge router space. Routers account for about 38% of Juniper’s overall valuation by our estimates, and market share gains in edge routers should be the most accretive to Juniper’s value going forward.

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1. Press Release, Juniper, March 11 2015 [↩]
2. Press Release, Juniper, Jan 27 2015 [↩]
3. Q4 2014 Juniper Earnings Transcript, Seeking Alpha, Jan 27 2015 [↩]