Juniper Networks posted a 14% year-over-year decline for its service provider revenue in Q1, mainly due to supply chain issues related to the COVID-19 pandemic. The service provider sector has been a struggle for both Juniper and Cisco over the past several earnings reports, but Juniper CEO Rami Rahim was bullish on Tuesday's conference call.
"Importantly, our service provider orders increased 4% year-over-year in Q1 representing the first year-over-year increase since 2017," he said. "We exited Q1 with solid bookings, so I actually expect you to see a meaningful sequential recovery."
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With service providers working to stay ahead of the increased capacity demands related to millions of employees now working from home, as well as online learning by students, Rahim said Juniper saw some modest benefits within its service provider sector related to COVID-19 upgrades.
Rahim also cited increased business with U.S. cable operators and more engagement with European Tier 2 and Tier 3 service providers as reasons for optimism around its service provider segment.
Juniper has also seen a bump in carrier adoption of its switching and security offering in addition to its traditional routing platforms.
Juniper CFO Ken Miller said supply chain constraints due to the COVID-19 crisis impacted the company's first quarter. If not for the supply constraints related to the COVID-19 pandemic, service provider revenue decline would have likely been in the mid to high single digits, according to Miller.
"Our component suppliers are even more geographically distributed with suppliers from many countries throughout the world," Miller said. "During the quarter, the supply constraints we experienced were due to both constrained manufacturing capacity particularly in China and Malaysia, as well as component parts shortages as our component suppliers were also facing manufacturing challenges. These challenges resulted in extended lead times to our customers and ultimately caused us to fall short of our revenue guidance for the quarter.
"While the situation remains very dynamic, we have improvements to our manufacturing capacity. However, we expect several of our component suppliers will remain challenged throughout most of the second quarter as they are operating under restricted work conditions."
For 400G, Rahim said that Juniper was process of working through customer qualifications, but it has the software systems and silicon in place to gain market share. He cautioned that the coronavirus pandemic could slow testing. Service providers may spend more of their time and capex on building out their existing networks this year, with an increased focus on 400G over the next two years.
Juniper's Q1 numbers
Juniper posted $998 million in revenue for the first quarter, which was 17% decline sequentially and down from $1 billion a year ago. Analysts had projected revenue of just over $1 billion for Juniper.
Juniper Network's enterprise revenue increased by 5% to $360 million in the quarter while switching was up $25% to $389 million. Revenue from Juniper's cloud business increased by 17% to $262 million.
On the down side, routing, which was impacted by supply chain issues, decreased by 16% to $314 million in the first quarter.
Like Cisco, Juniper has been working towards a software subscription model over the past few years instead of its traditional routing and switching hardware sales. Software revenue accounted for $11% of Juniper's total revenue in the quarter while growing 9% in the quarter.
Of Juniper's top-10 customers in the first quarter, four were cloud providers, five were service providers and one was an enterprise.
Juniper expects its revenue to be in the range of $1.01 billion and $1.11 billion in the second quarter.
"While we are seeing uncertainty in our business due to the COVID-19 pandemic, we expect to see sequential revenue and earnings growth in the second quarter," Miller said. "Confidence in our forecast is driven by strong backlog and healthy momentum with our service provider and cloud customers. We believe these factors should help offset increased uncertainty in certain segments of the enterprise market. Due to the uncertain macro environment, we have widened our revenue range for the second quarter."