Juniper gets 'mixed message' from Tier 1 telcos on flat Q2 service provider revenue

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Juniper Networks saw service provider sales uptick slightly quarter-over-quarter, but the overall market is in transition -- reflecting a trend the vendor is seeing with its Tier 1 customers.  

Service provider revenue was $835 million, flat year-over-year and but up 6 percent sequentially from the first quarter of 2016.

Juniper noted that year-over-year growth in Asia Pacific was offset by declines in the Americas and EMEA. However, on a sequential basis all geographies rose.

Rami Rahim, CEO of Juniper, told investors during the second quarter earnings call that despite the sequential increase the overall outlook for the service provider market remains unclear.

"Telco is a bit more of a mixed message," Rahim said during the earnings call, according to a Seeking Alpha earnings transcript. "I think if I look at the global opportunity, there are certainly good opportunities, especially in international for our routing products. That includes the MX and the new PTX products. I think visibility for Tier 1 telcos in particular for the second half remain somewhat challenging."

Despite some near-term uncertainty, Rahim said that it continues see growing interest in its SDN and NFV platforms from service providers like AT&T (NYSE: T) and Verizon (NYSE: VZ). AT&T is offering Juniper's virtual routing function as an option for its enterprise customers looking for on-demand virtualized network services, while Verizon is using the vendors CPE product for its virtual network service portfolio.

"We are also seeing increased momentum with managed service providers, leveraging our open platforms for SDN and NFV," Rahim said. "We believe we are in a unique position to help them achieve new levels of agility and cost optimization, and offer their enterprise customers best of breed technology choices without the complexity that typically comes from managing multi-vendor solutions."

Juniper saw mixed results across its three main product segments: routing, switching and security.

Routing revenue was $575 million, down 5 percent year-over-year and up 14 percent sequentially. The vendor attributed the year-over-year decline to the cloud providers segment, partially offset by an increase in the government vertical. On a sequential basis, Juniper said the increase was driven by telecom and cloud providers and to a lesser extent, the government vertical. From a product portfolio perspective, PTX results were strong, growing year-over-year and sequentially, while MX was down year-over-year and up sequentially.

Switching product revenue was a different story as revenues rose 19 percent sequentially and 10 percent year-over-year to $209 million. On a year-over-year basis, Juniper noted growth in both enterprise and service provider segments, while the sequential increase was driven by enterprise, partially offset by a slight decrease in the service provider segment.

Finally, security took another hit as revenues declined 27 percent year-over-year to $78 million. However, security revenues did rise 7 percent sequentially. Juniper attributed the year-over-year decrease to the enterprise segment and to a lesser extent service provider. The sequential increase was driven by the enterprise and telecom segments.

"In security, we did experience another difficult quarter as we continue to work hard to turn around this component of our business," Rahim said.

From an overall financial perspective, Juniper reported that second quarter net revenues remained flat at $1.2 billion year-over-year but up 11 percent sequentially.

Despite the current macro environment, Juniper Networks expects modest revenue growth for the remainder of 2016. The vendor has forecast revenues of approximately $1.25 billion, plus or minus $30 million.

"We remain constructive on revenue for 2016 and expect modest growth despite the current macro environment," Miller said. "We will continue to prudently manage our operating expenses."

Shares of Juniper were listed at $22.92, down $1.30, or 5.37 percent in Wednesday morning trading on the New York Stock Exchange.

For more:
- see the earnings release
- read the Seeking Alpha earnings transcript
- see this Wall Street Journal article

Special report: Tracking wireline telecom earnings in Q2 2016

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