Juniper's Q4 revenues drop 14% on slow carrier spending but beat analyst expectations

Juniper reported that fourth-quarter 2014 revenues dropped 14 percent year-over-year to $1.1 billion due to its key service provider customers AT&T (NYSE: T) and Sprint (NYSE: S) tightening spending on new equipment and projects.  

Despite the revenue decline, the vendor's results surpassed financial analysts polled by Thomson Reuters I/B/E/S, which forecast revenues of $1.01 billion. The higher quarterly profit was driven by an aggressive cost cutting initiative.

During the fourth quarter, Juniper reduced operating expenses by about 13.4 percent to $526.9 million, excluding a non-cash goodwill impairment charge of about $850 million related to its security reporting unit. It also finalized the sale of Junos Pulse and recorded a $20 million net gain.

Facing pressure from activist shareholder Elliot Management to reduce costs, Juniper said in April that it would cut its workforce by about 6 percent while it focuses on its high-growth businesses. The vendor also announced another round of $100 million in cost reductions in October as it forecast slower revenue growth for the remainder of 2014.

Alex Henderson, an analyst with Needham & Co., told Reuters that Juniper's cost-cutting efforts resulted in the company's operating expenses coming in $16 million less than analysts had expected.

From a segment perspective, product revenue was $794 million, down 17 percent from the same period a year ago and flat sequentially, while services revenue rose  $308 million, up 8 percent year-over-year and 2 percent sequentially.

However, Juniper's routing and switching product revenues both declined during the quarter, declining 15 and 12 percent year-over-year. However, switching product revenue rose 13 percent quarter-over-quarter due to what Juniper said was "demand from cloud providers and financial services for our QFX products."

Robyn Denholm, CFO and operations officer for Juniper, said during the earnings call that the decline in routing product revenue "was driven by weakness from our large U.S. carriers partially offset by strength in cloud providers," while the switching decline was "primarily due to declines in enterprise."

Meanwhile, security product revenue took the biggest hit, declining both 28 percent year-over-year and 9 percent sequentially to $97 million. Denholm said the decrease in the security segment "was due to a decline in the SRX platform from U.S. carrier customers, as well as the continued declines from ScreenOS products."

From a regional perspective, all of its regions reported declines. Revenue for the Americas was $559.5 million, while EMEA and Asia-Pacific was $352.3 million and $189 million, respectively.

Rami Rahim, CEO of Juniper, said that in EMEA, it continues to see customer interest with regional Tier 2 and Tier 3 "service providers that have really adopted a number of our products, especially our MX and PTX products as a build-out converged infrastructures and we are actually seeing some good momentum in the quarter as well in the Q4 timeframe."

Rahim added that in Asia-Pacific, the situation is more complicated because countries like China come with their own individual challenges.

"In APAC ... its bit more of a complex answer because I think the situation in places like China is somewhat different than the outside of China," Rahim said. In China, "we have to be very laser-focused on opportunities that we believe we actually have a good chance of winning and it's very much a partner-led model in doing so. And that can result in some lumpiness."

The vendor has issued a cautious outlook for the rest of 2015. Looking forward to the first quarter of 2015, the vendor has forecast revenues to be in the range of $1.2 billion to $1.6 billion.

"In the near-term, we continue to face headwinds in U.S. carrier spending," he said. "However, we do expect an improvement in spending in the latter half of this year. We have signaled in July of 2014 that the market was going to be challenging and we ran our business under the assumption that it would be so for the full four quarters cycles that we have historical seen."

Shares of Juniper were trading at $23.20, up 1.37 or 6.25 percent, in Wednesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- and the earnings transcript (sub. req.)
- Reuters has this article

Special report: Wireline telecom earnings in the fourth quarter of 2014

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