The planets may be aligning for Juniper Networks to return to year-over-year growth by the fourth quarter of this year, according to CEO Rami Rahim.
It's been a long trek through the wilderness for Juniper, but on Thursday's second quarter earnings call Rahim expressed confidence that his company will turn the corner based on several factors.
"We believe 5G, the 400-gig upgrade cycle, SD-WAN, Wi-Fi 6 and enterprise multi-cloud initiatives, each represent large multi-year opportunities, where we should be well-positioned to benefit over the next few years," Rahim said.
Along with improvements in those technology areas, Rahim said that Juniper is starting to see some benefits from adding to the company's sales team, although it will take a few quarters for the new sales reps to find their footing.
While Rahim bubbled with optimism on the earnings call, not everyone is sure that there's light at the end of the tunnel for Juniper.
“Juniper results were a snooze fest," said Scott Raynovich, founder and chief analyst of Futuriom, in an email to FierceTelecom. "The company is making money but revenue is still declining. Although it is making a lot of statements about moving toward the software-defined cloud world, it’s moving slowly and it will take another significant acquisition to start moving the needle. Otherwise it’s still just a legacy hardware routing business.”
In addition to the return to year-over-year growth, Rahim said he expects sequential revenue growth through most of Juniper's verticals the remainder of the year. For the second quarter, Juniper posted non-GAAP net income of $139.5 million, which was down 18% year-over-year, but up 50% sequentially. Juniper's non-GAAP earnings per share was $.40, which was in line with its April forecast.
"The first-half of 2019 played out largely as we expected and we are seeing healthy momentum in several areas of our business, which is providing confidence in our ability to not only deliver sequential revenue growth through the remainder of the year, but also a return to year-over-year revenue growth during the December quarter," Rahim said
One area of optimism for Juniper is 400G. Rahim said that Juniper has started shipping its first merchant and custom silicon-based 400-gig capable products and that it plans additional 400G products throughout the course of this year and next. Those products should win Juniper new business with hyperscale cloud providers, according to Rahim.
"We are primarily in the trial phase of the 400-gig cycle right now," Rahim said. "So in some cases, those are in labs, in some cases, we’ve actually seen some very early sort of limited production type of testing that is happening. And, this is the time in which we engage with our customers to make sure that we’re tucked and tied across the entire innovation stack from our new software capabilities and with our cloud-oriented Junos software that we’ve now introduced into the market and the new systems, and it’s looking good. It’s still early days, but I have to say that the feedback from our customers is very encouraging."
Rahim said that 400G won't really take off until the 400G optics are available, which Juniper will ramp up in the first half of next year. Rahim said the while the cloud providers will be the first big 400G customers, he expects service providers to be next in line.
While Juniper is a current customer of Acacia, Rahim said Cisco's $2.6 billion deal to buy Acacia wouldn't have much of an impact on Juniper because "there are alternative sources for the kinds of products that we were buying from Acacia."
During the second quarter, one of Juniper's unnamed cloud customers accounted for more than 10% of Juniper's revenue largely through its routing and switching purchases. In counting Juniper's top-10 customers for the quarter, four were cloud providers, five were telco service providers and one was an enterprise customer.
Going forward, Juniper projects revenue of about $1.1 billion for the quarter ending Sept. 30, with non-GAAP net income per share of approximately $0.46.
While Juniper's service provider revenue was up 3% from the previous quarter to $447 million, revenue was down 15% year-over-year.
"While not a surprise, our service provider business remains challenge," Rahim said. "We believe our service provider relationships remain strong and the weakness we’re seeing is tied to our customers business model pressures and the expected timing of project deployments."
Thanks to new MX 5G line cards, the 400G switches and routers, new SD-WAN capabilities for campus and branch deployments and enhanced Contrail software, as well as known opportunities in the pipeline, Rahim expects better sequential trends for the service provider sector for the second half of this year. In addition to new products and services, Juniper is also counting on its partnership with Ericsson to improve its service provider sales.
Juniper's software revenue grew 17% year-over-year, and accounted for more than 10% of Juniper's second quarter revenue. Rahim said software as a percentage of sales would continue to increase over time "especially as subscription-based pricing models become more pervasive and gain traction in the market."
Enterprise revenue increased 8% sequentially to $370 million, but was down 6% from last year. With service providers focused on their 5G builds, routing sales were down 15% from the previous year to $416 million, but increased 11% sequentially.
Switching revenue increased 22% sequentially to $216 million in the second quarter, but decreased 15% from the same quarter a year ago. Juniper's cloud business increased 28% sequentially, but was flat year-over-year. Rahim said the cloud sector would be "lumpy" going forward and could be down in September.
Juniper has moved some of its manufacturing out of China due to the Trump administration's tariffs. Rahim said that even if the tariffs were removed, it was unlikely that Juniper would move manufacturing back to China going forward.
Due to its outsourcing deal with IBM, Juniper's headcount was slightly down sequentially, but that was partially offset by its acquisition of Mist and the additional sales hires.