Juniper Sees Revenue Declines Across Product Lines
Juniper Networks (NYSE:JNPR) announced its Q3 2017 results on October 24, reporting a 2% annual decline in revenues to $1.26 billion. While services revenues rose 9% y-o-y to $389 million, combined product revenues fell by 6% to $870 million. In recent quarters, low product sales for routers and security products were offset by a rise in switching revenues. However, switching revenues were also down on a y-o-y basis through the September quarter.
Additionally, company-wide gross margin compressed by 80 basis points, with weakness across both product and services segments. On a non-GAAP basis, operating income and net income both fell by mid single digits, as shown below. 
Weakness Across Product Lines
- The switching segment has been a key growth area for Juniper over the last few years, with revenues growing at a CAGR of 12-13% from 2011 through 2016. The first half of the year was particularly strong for the company, with 38% and 32% revenue growth in Q1 and Q2, respectively.
- This trend reversed in Q3, with switching revenues falling 4% y-o-y to $213 million.
- The company attributed this decline to lumpy demand, particularly from large-hyperscale customers. Since there were delays in deployment for some large cloud customers, sales could pick up in coming quarters.
- Core routing revenues have witnessed limited growth over the last few years, with a CAGR of 1% from 2011 through 2016. This trend was also continued in 2017 with limited revenue growth over the comparable prior year period.
- Juniper has primarily struggled in the network security domain, with double digit revenue declines over the last few years. This trend has also been prevalent in 2017, with double digit revenue declines in each of the three quarters. In the same period, rival networking company Cisco (NASDAQ:CSCO) reported steady mid-single digit growth in network security revenues.
- Additionally, discounted selling prices have driven down product gross margins. Juniper’s product gross margins have consistently fallen from 67.6% in 2011 to around 62.4% in 2016. The company expects to continue to sell products at lower than the 62% mark in the coming quarters as well.
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- Comparatively, the services segment has driven much of the top line growth for the company in recent quarters. Juniper reported 14% annual growth in services revenues to $390 million for the March quarter. This continued in Q2, with 9% growth in revenues to $392 million. This further continued to 9% annual growth in Q3, as shown above.
- However, gross margin for services was down by around 40 basis points for the September quarter, a trend inconsistent with previous quarters.
Guidance For December Quarter
- Juniper’s management expects net revenues of around $1.23 billion for Q4, which is 11% lower than the comparable prior year period.
- Juniper’s non-GAAP gross margin for Q3’17 is also expected to be around 100 basis points lower than the comparable prior year period at 62%. Management targets a gross margins to stay at around 62%.
- Non-GAAP operating expenses are expected to decrease by 5% on a y-o-y basis to $485 million.
- Revenue decline and lo gross margins could drive non-GAAP diluted EPS to fall by over 20% to 52 cents a share.
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