Juniper’s Rahim: Telecom remains a challenging market environment

Juniper Image: Juniper Networks
In the third and fourth quarter, Juniper is seeing service provider customers delay spending as they go through architectural shifts in their networks.

Juniper continues to see the effects of slower telecom customer spending as these customers figure out how to transition their networks to a software and cloud-based architecture, prompting the company to lower its fourth-quarter guidance.

In the third and fourth quarters, Juniper is seeing service provider customers delay spending as they go through these architectural shifts in their networks.

CEO Rami Rahim told investors during Juniper's third-quarter earnings call that he does not expect a meaningful uptick in the telecom market.

Rami Rahim
Rami Rahim

“Telco remains a challenged market environment,” Rahim said, according to a Seeking Alpha transcript. “We're seeing more of the same in terms of them running their networks hotter, cloud transformations, consolidation, M&A are all headwinds that we're facing in the telco space.”

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Rahim added that Juniper foresees “catalysts” of future growth opportunities it can pursue with service provider customers.

“The catalyst, I believe, for telco spending will be around preparation for 5G, metro build-outs that I think are going to start to happen over the next couple of years, and new approaches to delivering value to the Enterprise that are more virtualized and software-based like SD-WAN,” Rahim said. “We've really architected our SD-WAN strategy around enabling the telcos to go after that opportunity.”

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

Routing: Routing revenues were $586 million, down 6% year-over-year and up 2% sequentially. Juniper said the year-over-year decrease was primarily due to Telecom/Cable. The sequential increase was driven by Telecom/Cable and Cloud, partially offset by Strategic Enterprise. However, the PTX family saw a record revenue quarter, with strong year-over-year and sequential growth, while MX declined year over year and sequentially.

Switching: Due to the delay of certain large cloud customer deployments, switching revenues were $213 million, down 4% year over year and 23% sequentially. Cloud and Telecom/Cable decreased, partially offset by Strategic Enterprise. On a sequential basis, the decrease was primarily driven by the timing of certain large deployments within the Cloud vertical. Juniper’s QFX family of products continued to grow year over year but declined sequentially due to the timing of deployments. Likewise, the EX product family declined year-over-year and sequentially.

Security: Security declined 17% year over year to $71 million but was up 4% sequentially. Juniper attributes the year-over-year decrease to Cloud. The sequential increase was driven by Telecom/Cable, partially offset by a decline in Strategic Enterprise.

Services: Service revenues were $388 million, up 9% year over year and down 1% sequentially. The year-over-year increase was driven by strong demand for professional services and strong renewal and attach rates of support contracts. Sequentially, the decrease was primarily due to the timing of professional services projects.

Financials: Juniper reported that net revenues were $1.26 billion, down 2% year over year and 4% sequentially. GAAP operating margin was 19.4%, a decrease from 19.5% in the third quarter of 2016, and a decrease from 19.7% in the second quarter of 2017.

Looking toward the fourth quarter, Juniper expects $1.23 billion in revenues, plus or minus $30 million. The company said its fourth-quarter outlook “reflects continued large deployment timing delays as Juniper expects its large customers to continue their architectural transition.”