Juniper Earnings Preview: Services To Drive Revenue Growth, Improve Profitability

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JNPR: Juniper Networks logo
JNPR
Juniper Networks

Juniper Networks (NYSE:JNPR) is scheduled to announce its Q3 results after market close on October 25th. [1] The company expects roughly flat revenues over the year-ago period at $1.25 billion with the gross margin compressing by around a percentage point to 63%, as shown in the table below. Margins are expected to be slightly lower than 2015 levels, primarily due to pricing pressure for product sales leading to lower gross margins for the products division.

jnpr_q3ep2

In the first half of the year, Juniper experienced a 3% annual decline in product sales to $1.62 billion. Moreover, the gross margin of the product division compressed by 140 basis points over the comparable prior-year period, mainly due to elevated pricing pressure on products, especially in the EMEA region. Within the product division, Juniper witnessed strength in the Switching business, with revenues growing by double digits in Q2 both year over year and sequentially. Strong demand for Switching products was driven by telecom customers and the government sector. Moreover, the newly introduced QFX 10K platforms are expected to drive revenue growth in the latter half of the year. [2]

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On the other hand, Services revenues were up 13% year over year in the same period. Growth was driven by the company’s cloud-enabled brand solution that allows enterprise customers and managed service providers to provide on-demand cloud services. Additionally, the improvement in Services gross margin was impacted by timing of spare parts purchases in previous quarters. [3]

jnpr_q3ep3

As a result, Juniper management has taken measures to restrict growth in its operating expenses over the last two quarters. The company aims to improve its cost structure such that its operating expenses for the third quarter fall by 7% y-o-y to around $500 million. This is likely to further improve operating profit for the company. [2]

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Juniper.
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Notes:
  1. Juniper Networks Announces Date of Third Quarter 2016 Preliminary Financial Results Conference Call and Webcast, Juniper Press Release, October 2016 []
  2. Juniper Networks Q2 2016 Earnings Call Transcript, Seeking Alpha, July 2016 [] []
  3. CFO Commentary on Second Quarter 2016 Preliminary Financial Results, Juniper Press Release, July 2016 []