Cloud and service provider segments weigh on Juniper's earnings results

Juniper Image: Juniper Networks
Juniper Networks expects its revenues to rebound in the second half of this year. (Juniper Networks)

Juniper Networks' fourth-quarter and full-year results were dragged down by lower revenues in its service provider and cloud divisions.

Juniper has been struggling to find its footing as it makes the transition to more software and cloud-based recurring revenues, but CEO Rami Rahim expects the company to bounce back in the second half of the year.

Juniper, which reported its earnings results Tuesday afternoon, saw its fourth-quarter and full-year revenues slide. For the fourth quarter, Juniper posted revenues of $1.181 billion, which was down 5% year over year and flat compared to the previous quarter.

For the year, Juniper reported net revenues of $4.647 billion, which was an 8% decrease annually. Juniper's non-GAAP net income was $666.4 million, which was down 18% year over year with non-GAAP diluted earnings per share of $1.88 for an 11% decrease annually.

An earnings note from Credit Suisse analyst Sami Badri characterized Juniper's earnings as negative do to the fourth-quarter results being below its estimates. Badri wrote that Juniper's issues included the disappointing results of its cloud division and the impact from the partial government shutdown. According to Credit Suisse, the federal government accounts for 15% of Junipers' enterprise revenues.

Juniper's cloud revenues decreased 8% year over year due to slower deployments by the company's cloud customers.

"So based on our very tight connection that we have with our cloud provider customers, I do not believe that we are losing footprint; that is not the issue that is slowing us down here," Rahim said on the earnings call, according to a Seeking Alpha transcript. "It really is just a matter of our cloud provider customers now consuming the capacity that they have built into their networks, and, yes, running them harder before they increase their buildup."

Service provider revenue was down 15% year over year, largely due to slower sales in the Americas region. Juniper's routing was down 10% for the quarter and 16% for the year, which Rahim said was partially driven by the service provider and cloud segments.

Juniper's switching decreased 2% in the quarter and 3% for the year, but was partially offset by the growth in the enterprise sector.

On the glass half full side, Juniper's enterprise grew 10% for the year. Security was another highlight for 2018, growing year over year for the fifth consecutive quarter and posting 14% growth for the full year.

Looking ahead

Juniper is optimistic that it will rebound to growth in the second half of this year, although the partial government shutdown and "geopolitical uncertainty" are expected to have an impact on its first-quarter results.

Juniper expects it routing sales to bounce back as due to the increased capacity that 5G rollouts will have on networks. Since 5G is a technology "born in the cloud," Rahim also said there would be more traction in the telco cloud space, particularly with its Contrail edge cloud as software. The transition to the cloud will also give Juniper the opportunity to sell more of its routing, switching, security and virtualized services going forward.

"It's not yet a meaningful revenue contributor, but I do think it starts to meaningfully contribute especially as 5G becomes more of a factor," Rahim said, according to Seeking Alpha.

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Juniper is also banking on upcoming revenues from its 400-gigabit switch, but it faces competition from Cisco, Arista Networks and white box software vendor Arrcus.

For the quarter that ends March 31, Juniper provided revenue guidance of $980 million, plus or minus $30 million, and non-GAAP income per share of $0.20, plus or minus $0.03.

Juniper said it would increase its quarterly dividend by 6% to about $0.19 per share, which will be paid to shareholders on March 22. Juniper also plans to embark a $300 million accelerated share repurchase program.

"While we are disappointed by our Q4 sales, we are seeing success in several areas of our business that we expect to continue through the upcoming year and should help drive the business back to year-over-year growth at some point during the second half of 2019," Rahim said on the conference call.