Juniper’s Rahim: Carrier spending outlook is still somewhat challenged

The service provider community’s ongoing transition to software-based cloud architectures had a chilling effect on Juniper's hardware-based infrastructure sales.

Juniper may be seeing some near-term service provider spending in the fourth quarter, but overall capex trends for 2017 by the vendor’s largest carrier customers remain unclear.  

Rami Rahim, CEO of Juniper, told investors during the fourth-quarter call that while carrier sales rose in the fourth quarter, the unpredictable environment has become a common theme.

“As far as carrier outlook, I think in the fourth quarter we saw a good sequential increase in revenue in the carrier space, which we had predicted this primarily because we expected some year-end spending by the carriers,” Rahim said during the earnings call, according to a Seeking Alpha transcript. “The outlook is still somewhat challenged and that is a bit of a new normal in the carrier space that we've been talking about for a while.”

Rahim added that while reports indicate that carrier spending has stabilized, “we’re not expecting in our full-year outlook any sort of major recovery in carrier spending.” 

Software transition takes hold

What is driving this challenging carrier outlook is the service provider community’s ongoing transition to software-based cloud architectures, so Juniper will focus on luring them with its Contrail and virtual routing, virtual security and other technologies.

Rahim said that as carriers make their migration to software-based elements, “they're going to delay investments in traditional routing infrastructure and what we need to do here is to make sure that we engage with them in a way that allows us to benefit from the new architectures when they start to take shape.” 

Regardless of the broader spending trends, Juniper’s service provider segment reported $978 million in fourth-quarter revenues, up 5% year-over-year and up 15% sequentially.

The company said the year-over-year increase was driven by the Americas region, but partially offset by a decline in Asia-Pacific carrier sales. Services and switching were the key elements in year-over-year growth.

Sequential growth was driven by Americas, which was partially offset by a decline in EMEA. Routing, switching and services drove sequential growth.

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Cloud provider growth continues

While future carrier spending patterns are not particularly clear, Juniper continues to see strong growth with cloud providers.

“I think where the spending is going to remain robust is going to be in the cloud space where we have been really focusing and seeing really good growth throughout last year and I think that continues this year,” Rahim said.

By focusing on the cloud services opportunity, Juniper is seeing new growth in its data center switching portfolio. In particular, the vendor found that its QFX family of products saw strong demand with revenue rising about 90% year-over-year in the fourth quarter and over 50% for fiscal year 2016.

Rahim said that while the cloud provider “landscape is competitive and it'll probably get even more competitive, I have confidence in our ability to compete from a technology standpoint and in just sheer understanding of what these guys actually need going forward.”

Here’s a breakdown of Juniper’s key metrics:

Routing: Routing product revenue was $654 million, up 1% year-over-year and up 5% sequentially. Juniper said that cloud providers contributed the majority of routing revenue, which was partially offset by cable and telecom. On a sequential basis, the increase was due to telecom and cloud provider growth, but partially offset by a decline in cable MSO sales. In particular, Juniper said the PTX family saw another record quarter, with strong year-over-year and sequential growth, while the MX platform was down year-over-year and up sequentially.

Switching: Switching product revenue was $251 million, up 19% year-over-year and up 13% sequentially. The year-over-year and sequential increase was primarily driven by cloud providers. Switching revenue growth was partially offset by a decrease in campus and branch enterprise deployments. Juniper reported continued data center strength with record results in its QFX product family, which grew approximately 90% year-over-year. However, the EX product family declined year-over-year, but rose sequentially.

Security: Security product revenue was $81 million, down 30% year-over-year and down 5% sequentially. The year-over-year decrease was primarily due to slowness in the telecom and enterprise sectors.

Financials: Juniper reported that fourth-quarter net revenues were $1.39 billion, up 5% year-over-year and 8% sequentially. 

Looking forward, Juniper has forecast first-quarter revenues of $1.2 billion, plus or minus $30 million.