Juniper’s Routing Business Will Continue To Weigh On Its Revenues In 2020

Juniper Networks (NYSE: JNPR) is undergoing a significant transformation to its core business due to a prolonged slowdown in service provider spending. The technology hardware company has had a difficult last few quarters due to weak service provider demand and is expected to have a difficult 2020. Juniper’s routing business, which makes revenue by selling routers, is expected to contribute $1.6 billion to Juniper’s 2019 revenues, making up 36% of the company’s $4.4 billion in revenues for 2019. The Routing segment contribution is only slightly lower than the services business, which provides maintenance and troubleshooting services for networks – includes all components of a communication network. The Services business is expected to add $240 million between 2016 and 2020, partially offsetting the revenue loss of $850 million for the routing business over the same period. Trefis highlights trends in Juniper’s Revenues over the years along with our expectations for 2020 in an interactive dashboard, key elements of which are discussed below.

How Has Juniper’s Historical Revenue Trended?

• Juniper has lost more than $340 million in total revenue since 2016 at an average annual rate of 3.5% primarily as a result of a steep decline in the routing business which has lost more than $510 million in revenue over this period.
• However, the company’s other divisions have continued to grow at a decent pace.
• Going forward, we expect Juniper’s revenues to decrease by 5% in 2019 and then increase by 0.7% in the subsequent year to cross $4.4 billion in 2020.

A Detailed Look At Juniper’s segment performance and revenue change over the years:

#1. Routing’s Revenue Has Declined Steeply Over The Last Few Years

• Routing has been the company’s worst-performing segment, losing well over $515 million in total revenues since 2016 at an average annual rate of 11.6%
• This decline can be primarily attributed to networking architectural transitions for Cloud customers and a decline in the company’s Service Provider business.
• However, Routing is still the company’s largest segment – accounting for nearly 40% of the company’s revenue in 2018.
• We expect this declining trend to continue for the next couple of years, with the segment’s revenues expected to decline by 13% and 6% in 2019 and 2020, respectively.

#2. Services Segment Is Expected To Overtake Routing To Become Juniper’s Largest Segment

• Juniper’s Services segment has achieved steady growth in the last few years, with revenues increasing from $1.46 billion in 2016 to over $1.55 billion in 2018 driven, primarily due to strong renewal and attach rates of support contracts.
• Additionally, the company continued to witness revenue growth from the Asia Pacific and EMEA regions.
• Although the segment’s revenues declined in 2018, this was due to the company’s adoption of the Topic 606 accounting standard.
• We expect this segment to continue its steady growth, with revenues increasing at an average annual rate of 5.1% to $1.7 billion in 2020.
• Moreover, the company is expanding its software business by introducing new software solutions to its product portfolio that should also aid this segment’s growth over coming years.
• The segment’s contribution to total revenues has increased steadily over the years and we expected the Services segment to become the company’s largest segment in 2019 with a revenue contribution of 37%.

#3. Switching Segment Has Remained Stable Around $900 Million Over The Last Few Years And Is Expected To Remain Around The Same Level

#4. The Security Segment Has Contributed ~7% Of The Top Line Over Recent Years

Additional details about how revenues for Juniper’s Switching and Other segments have changed over recent years are available in our interactive dashboard.

Per Trefis estimates, Juniper’s EPS for fiscal 2019 is likely to be $1.71. Taken together with a P/E of 15.1x, this works to a fair value of $26 for Juniper’s stock.

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