Juniper reports weaker results and a challenging first-quarter outlook as it struggles with its customers transitioning their networks to cloud and software-based architectures.
Rami Rahim, CEO of Juniper, told investors during its fourth-quarter earnings call that the company saw “mixed results for the fourth quarter.”
“While revenue and non-GAAP EPS were both above the midpoint of guidance, gross margins remained under pressure and we continued to experience weakness in both routing and in the cloud," said Rami Rahim, CEO of Juniper during the earnings call, according to a Seeking Alpha transcript. “This weakness is primarily being driven by the shift to a scale out from scale up architecture, most notably at several of our largest cloud customers, which appear likely to persist through at least the upcoming quarter.”
Rahim added that after the Juniper gets through this transition it has the right products to enhance revenue with cloud providers.
“Despite this ongoing headwind in a small number of hyperscalers, we remain confident in our position within the cloud vertical, where we have built substantial footprint with many large cloud providers over the past few years,” Rahim said.
Consolidation affects telecom decisions
Another key challenge for Juniper and other vendors is Tier 1 telco customers, which have delayed some spending decisions as they integrate acquisitions of other providers into their fold.
While Juniper did not name any specific telco customers, CenturyLink, is in the process of integrating its $35 billion acquisition of Level 3 into its fold, for example.
“There are some headwinds due to M&A consolidation that's happening in the telco space,” Rahim said. “So, we're not expecting any breakthrough growth from telco anytime in the near term.”
Rahim said he foresees the potential for Juniper to play a large role in wireless operators’ 5G transition as those networks will require high speed routing and switch platforms to support new business and consumer traffic loads, but the near-term outlook is less clear.
“Looking out a little bit further as you get into 5G, as you get into the build up necessary to support 5G traffic, especially in the metro, I do view that as an opportunity,” Rahim said. “But we have to sort of temper our expectations because I do think that this market is going to be somewhat challenging, at least for the foreseeable future.”
A challenging outlook
It does not appear Juniper is going to see an immediate customer spending uptick. Looking toward the first quarter of 2018, Juniper forecasts revenues of about $1.05 billion, plus or minus $30 million.
During the first quarter, Juniper expects large cloud customers to continue an architectural transition, which will impact its revenues.
“Our Q1 revenue outlook reflects ongoing deployment delays as we expect our large cloud customers to continue the architectural transition,” said Ken Miller, CFO of Juniper. “This is expected to result in below normal seasonality for the first quarter.”
Following the first quarter, Juniper expects revenue to grow sequentially and return to year-over-year growth by the end of the year.
Here’s a breakdown of Juniper’s key metrics:
Routing: Juniper’s fourth-quarter routing revenues were $509 million, down 22% year-over-year and down 13% sequentially. The vendor said the year-over-year decrease was primarily due to Cloud and Telecom / Cable segments, while the sequential decrease was driven by Cloud. However, the sequential decrease was partially offset by Telecom / Cable and Strategic Enterprise. Both PTX and MX product families declined year-over-year and sequentially.
Switching: Switching revenue was $233 million, down 7% year-over-year and up 10% sequentially. Juniper said the year-over-year decrease was driven by Cloud, partially offset by Strategic Enterprise. Sequentially, the increase was driven by all verticals. The QFX and EX family of products declined year-over-year but grew sequentially.
“In switching, we saw double digit sequential growth in Q4, even though the business declined year over year,” Rahim said. “Normalized for lumpiness from our large hyperscale customers, our QFX product line continued to grow at double digit rates year over year. That growth is happening across public and private cloud segments, driven in part by 100 gig adoption.”
Security: Security remained a bright spot, rising 8% year-over-year and up 23% sequentially to $88 million. Year-over-year, the increase was due to Strategic Enterprise. The sequential increase was driven by Cloud and Strategic Enterprise. Total SRX revenue grew year-over-year and sequentially.
Services: $409 million, up 2% year-over-year and up 5% sequentially. Year-over-year and sequentially, the increase was driven by strong renewal and attach rates of support contracts.
Financials: Juniper reported total net revenues of $1.24 billion, down 11% year-over-year and 1% sequentially.