While Juniper Networks struggled across the board in its first-quarter results, its software revenue was a bright spot.
During Thursday's earnings call, CEO Rami Rahim said Juniper's software business grew 8% year over year and accounted for more than 10% of Juniper's revenue during the first quarter.
"This strength was driven by a combination of on-box and off-box offerings with revenue from our Contrail family of SDN-enabled management and control software solutions increasing nearly 40% year over year," Rahim said, according to a Seeking Alpha transcript.
While Rahim said the rest of the results were in line with Juniper's expectations, it was a rough quarter. Juniper's enterprise revenue increased 3% year over year but was down 20% sequentially, which Rahim said "is more than normal seasonality."
Juniper's routing revenue decreased 8% year over year and 16% sequentially while switching was down 23% year over year and sequentially. Security was down 7% year over year and 35% sequentially.
The company's cloud vertical has been struggling, and that beat continued during yesterday's earnings. Cloud was down 18% year over year and 6% sequentially.
"Juniper is a second tier player, and they operate by having good point products in routing, switching and security, but they don't have a broader architectural play, so it's always challenging for them to compete against Cisco and some of the larger telecom providers," said Lee Doyle, principal analyst at Doyle Research. "There's always the question of when software routing and SD-WAN start hurting the router business. "
Service provider revenue efforts also struggled, which Rahim said was due to service providers facing their own business challenges. Service provider revenue decreased 9% year over year and 16% sequentially "due to weakness across all geographies," Rahim said.
"While not a surprise, we continue to experience weakness within the cloud and service provider verticals," Rahim said. "Our cloud business remains challenged, as several of our large customers continue to run their networks hotter, and the pace of port deployments was not great enough to offset ASP declines.
"While this dynamic caused our cloud revenue to decelerate as expected during the March quarter, we were encouraged to see a pickup in orders toward the end of the period, which is providing confidence that momentum should improve over the next few quarters."
Rahim said that based on the capacity demand Juniper is currently seeing, the company remains confident in regards to holding its cloud footprint in areas of the network where it has historically played. He said there is potential for improvement in its existing cloud footprint to drive a return to growth over time, but "new uses will be needed to achieve our long-term model."
Building a better presence in data centers is one area of opportunity for Juniper, while Rahim also said the company sees the selling of its 400G gear "as an inflection point that creates opportunities for wins later this year that should drive share gains in future periods." Juniper could also see a bump in its fortunes related to 5G later this year as carrier 5G and telco cloud initiatives start to ramp up.
Juniper also is optimistic about integrating Mist deeper into its product portfolio. Juniper bought Mist, which is an AI-based wireless local area network (WLAN) vendor, earlier this month for $405 million. The vendor is leveraging Mist in a cloud-delivered version of its SD-WAN service.
"We believe Mist is truly disruptive technology, and the early feedback from both customers and the field has been very positive," Rahim said." We are early in the process of integrating Mist into our go-to-market motion, and educating the field on how to sell the company's products. While we do not expect Mist to generate material revenue during 2019, we believe the Mist portfolio positions Juniper to disrupt the $6 billion wireless LAN market and pull-through sales of our campus switching solutions, which could positively impact our results later in the year."
Juniper posted revenue of $1.0017 billion in the first quarter that ended March 31, which was down 7% year over year and 15% sequentially. Net income was $92.7 million, a 7% drop from the previous year and a 55% decrease from the previous quarter. Juniper reported non-GAAP diluted earnings per share of $0.26.
For the second quarter, Juniper projects revenue of $1.1 billion, plus or minus $30 million, with non-GAAP net income per share of $0.39 plus or minus $0.03, assuming a share count of about 350 million.
Juniper's stock traded at $28.15, which was a 0.14% increase, after hours on Thursday, but dropped to $27.40 per share by mid Friday morning.