Juniper Rises As Routing And Switching Drive Growth, And Initiatives Brighten Up The Outlook

Juniper (NYSE:JNPR) witnessed a turnaround in its growth during the third quarter of 2015, led by a strong recovery in the switching and routing businesses. Better demand from service providers, where business was up 8.5%, along with strong response towards newer products, helped the networking company achieve solid 11% top line growth. Juniper had expected its growth to bounce back in second half of 2015, and so far it has not disappointed. The company is likely to sustain this momentum in the future, as it just announced certain new investments across different verticals. A new reference architecture for cloud-enabled enterprise, innovation in security, new partnerships, expansion of Contrail for software defined networking (SDN), and an expected newer version of QFX10000 switches should help the company deliver solid results going forward.

Juniper’s net income almost doubled year-over-year to $197.7 million, or 52 cents per share, driven by operating leverage gains and a fall in SG&A and R&D expenses, thanks to strong expense management. ^[1] On a non-GAAP basis, the company’s EPS settled at 57 cents, which was slightly ahead of consensus estimates. Net revenues totaled $1.25 billion, a good $20 million more than what analysts polled by Thomson Reuters estimated. ^[2] For the fourth quarter, Juniper expects net revenues in the $1.27-$1.31 billion range, with EPS at $0.57-$0.60, both slightly ahead of analysts’ estimates. The company’s stock has been up more than 5% since the earnings release, thanks to better-than-expected results and guidance.

Our $28 price estimate for Juniper is about 10% below the current market price. However, we are in the process of updating our model in light of the recent earnings release.

See our full analysis of Juniper Networks

Routing And Switching Sales See Strong Growth 

During the third quarter, Juniper’s routing sales increased a sizable 13%, driven by an increase in capital spending by carriers. The segment witnessed consistent growth across verticals, with strong improvement from the telecom and national government sectors. The company’s most prolific router series, MX and PTX, continued to deliver impressive results, with accelerated adoption of newer models – PTX5000, PTX1000 and ATX500. Routers account for close to 50% of Juniper’s net sales, and double-digit growth in its revenues played a crucial role in driving the company’s top line.

The other key highlight of Q3 was the 30% growth in revenues for the switching division, which contributes about 16% of total revenues. Switching sales were largely propelled by its sturdy QFX series, where relatively newer products – QFX10000 and QFX5100 – continued to gain traction with the cloud, service providers and enterprise customers. In addition, EX family switches also witnessed strong adoption across enterprise, government and service provider customers. ^[3]

New Initiatives Should Support Future Growth

With the industry rapidly evolving and adopting cloud-based solutions, Juniper is looking to respond accordingly. During the third quarter, the company launched its Juniper Networks Unite, which serves as a reference architecture for cloud-enabled customers. The architecture, which reflects Juniper’s focus on IP networks innovation, includes Junos Fusion Enterprise fabric for simplified management of large networks within an enterprise campus. Also, Juniper mentioned that its Contrail solution, which is a cloud networking and service orchestration platform, is crucial for its evolution in the cloud domain. ^[3] In fact, AT&T has selected Juniper’s Contrail to provide SDN capabilities in its AT&T Integrated Cloud (AIC) infrastructure. This is a valuable contract win for the networking company. ^[4]

In addition, Juniper announced some innovations for security that are expected to enable better threat intelligence, prevention and dynamic policy enforcement. Security is an area where Juniper has been struggling somewhat, as even during the third quarter, security revenues fell slightly by 1.6%. However, double-digit growth in high-end SRX products was a silver lining. The aforementioned innovations and consistent performance from SRX should help stabilize the business going forward. Juniper is looking to expand its reach and drive top line growth by extending its partnerships. The company built on its partnership with NEC during the quarter, to provide IP transport routers to Telenor Group. It also added Aerohive network to its technology alliance ecosystem, which will help it develop simple secured and cloud wired and wireless solutions, with strong coalition with Ruckus and Aruba. ^[3]

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1. Juniper Networks Reports Preliminary Third Quarter 2015 Financial Results, Juniper, Oct 22 2015 [↩]
2. Juniper Networks Keeps Impressing With Earnings Gain, Investors, Oct 23 2015 [↩]
3. Juniper’s Q3 2015 Earnings Transcript, Oct 22 2015 [↩] [↩] [↩]
4. Juniper Networks Contrail Selected to Support the AT&T Integrated Cloud, Juniper, Oct 5 2015 [↩]