How Does The Future Look For Juniper?

by Trefis Team
-6.13%
Downside
27.77
Market
26.07
Trefis
JNPR
Juniper
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Juniper Networks (NYSE:JNPR) is one of the few prominent names in technology hardware. The company’s products focus on networking and cover routing, switching and security. As the world has moved towards cloud, Juniper’s revenues have also been guided by the changing network spending patterns. As noted by the company’s management, the enterprise vertical has seen seven straight quarters of year-over-year growth, including 15% growth in the most recent quarter, while cloud revenues declined. By product, routing declined 15% y-o-y to $496 million due to weakness in cloud.

We currently have a price estimate of $26 per share for Juniper, which is marginally lower than the current market price. Our interactive dashboard on Juniper’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

The term “weakness in cloud” needs further clarification. Overall, cloud adoption has been on a record high, with AWS and Azure posting strong sequential growth. However, Juniper’s management believes that the company has been affected by a couple of things:

  • Pricing per port for PTX is lower than that of MX: As Juniper continues to migrate from MX to PTX, the company expects to see dilution in revenue. However, the management believes that this short-term pain is likely to help cement its position from a competitive differentiation standpoint. Juniper also noted that the port shipment volumes for 9M18 have exceeded the volume for 9M17, but the lower pricing has led to lower revenues.
  • Pace of deployments: While the volumes may have been higher, the company still believes that the pace of deployments have been lower than expected. The management further adds that “the timing of project build outs has been difficult to predict”.

On a net basis, despite a fairly buoyant IT spending atmosphere, the company appears to have expected a lot more shipped product than it ended up selling / deploying at the customer end. However, this has not led to a build up in inventory. Per 10-Q filings, inventory for Q3 was $75.6 million, down from $81.3 million in Q2 and $90.9 million Q3 of 2017. It is possible that since the price of PTX is lower than MX, the dollar value of inventory could be lower despite higher volumes of inventory of undeployed PTX.

Another area of concern for the company is the expectations of an overall market decline in Juniper’s largest segment, routing, with other segments growing in mid-single digits. Lastly, the company’s management also notes some headwinds from the China – U.S. trade disputes. While some players, such as F5 Networks, had initiated a move out of China for much of their manufacturing, Juniper continues to produce in China. Not only are tariffs expected to incrementally put pressure on margins but also may impact end demand, something management wants to play by ear.

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