Juniper says it has no plans to become a large optical player, issues conservative Q1 outlook

Juniper's move to acquire BTI Systems is certainly a sign that the vendor is finally fulfilling a need to deepen its optical holdings, but Rami Rahim, CEO of Juniper, says it has no plans to create a larger optical business.

Speaking to investors during the fourth quarter 2015 earnings call, Rahim said that the BTI acquisition will give it a better chance to compete for packet-based optical network opportunities -- one that it had been pursuing for a number of years through partnerships with other vendors like Coriant and Adva Optical Networking.

"The goal of this acquisition is not to build a large optical business inside of the Juniper," Rahim said during the fourth quarter earnings call, according to a Seeking Alpha transcript. "The goal is to capture what we believe are very important market inflection points that have to do with the convergence of packet and optical. And this is not a new strategy, this is actually strategy that I've talked to you and our customers and our partners about over several years. We have already been developing optical interfaces, colored interfaces on our routers."

Indeed, Juniper has been continually adding new optical interfaces to its routing platforms like the MX router product line and others.

The timing of the acquisition is key, particularly as it now has to deal with larger threats not only from optical players like Ciena, Infinera and Nokia, but also from the joint Cisco/Ericsson venture formed last year.

Regardless of the challenges it will face, purchasing BTI will enable Juniper to more effectively respond to changing market opportunities.

"We see new growth opportunities in the data center interconnect and metro Ethernet markets," Rahim said. "Traffic growth in the networks that form this market is forcing our customers to consider new architectural approaches to keeping up with traffic demand cost effectively."

Rahim said that "by combining Juniper's data center switching and IP routing platforms with BTI's cloud and metro networking systems and software, we expect to transform packet optical networking and provide our customers with open software driven solutions that are automated highly programmable cost efficient and offer tremendous service agility."

Juniper reported in the fourth quarter it saw year-over-year growth across its routing, switching and security product lines.

Driven by growth from telecom, cable, and cloud providers in the Americas and APAC, routing product revenue was $648 million, up 24 percent year-over-year, but partially offset by a decline from a decline in EMEA service provider spending. In particular, Juniper saw growth with the MX routing family.

Fueled by data center growth from its QFX product family across all of its customer segments, switching product revenue rose 21 percent year-over-year to $210 million. On a quarter-over-quarter basis, switching product revenue increased 4 percent, driven by cable and telecom and partially offset by a decline in Americas Enterprise.

Finally, security product revenue was $116 million, up 20 percent year-over-year and down 3 percent sequentially. Juniper said the year-over-year increase was primarily due to growth in Telecom and Cloud Providers, slightly offset by a decline in Enterprise in APAC and EMEA. The expected quarter-over-quarter decrease was largely due to timing of deployments in Enterprise and Cloud Providers.

From an overall financial perspective, Juniper reported that net revenues rose 20 percent year-over-year to $1.3 billion, surpassing its own outlook.

The vendor reported that net income was $197.8 million, consistent with the third quarter, and increased compared to a $798.6 million net loss in the prior fiscal year, even when adjusted for the $850 million non-cash goodwill impairment charge taken in the fourth quarter of 2014.

Citing uncertainty in the near-term global macro environment and potential lumpiness in its customer investment patterns, Juniper issued a conservative first quarter 2016 financial outlook. The vendor forecast first quarter revenues to come in at about $1.17 billion, plus or minus $20 million.

Rahim said the conservative outlook is based on trends the vendor is seeing within all of its customer segments.

"I just believe that as we start 2016 and you see the incredible amount of volatility in the market across really all markets and all geographies, it's a good idea for us to plan and manage the business with the assumption that there could be some lumpiness," Rahim said, adding that the market swings won't stay within any single vertical.

In related news, Juniper is also making changes to its management team with CFO Robyn Denholm announcing she will step down following the filing of the company's annual report. She will remain with the company for several months to help facilitate a smooth transition.

The company plans to name Ken Miller, who currently serves as Juniper's senior vice president of finance, to succeed Denholm as chief financial officer.

Shares of Juniper were listed at $22.66, down $3.88, or 14.6 percent, in Thursday morning trading on the New York Stock Exchange.

For more:
- see the earnings release
- see the earnings transcript (sub req.)

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