Juniper sees key growth potential in cloud, but security, routing and switching remain challenges

Juniper Image: Juniper Networks
First-quarter results for Juniper were a mixed bag.

Juniper's CEO said that cloud services will be an ongoing revenue growth driver for its customers that are transitioning their networks, but the vendor faces near-term challenges in lumpy routing/switching spending.

Rami Rahim, CEO of Juniper, told investors during its first quarter earnings call that the cloud service transformation is having an influence across multiple domains.

Rami Rahim

“We believe the biggest trend that is driving our industry and our strategy as a company today is the cloud. As the industry evolves, cloud architectures are no longer the exclusive domain of the cloud providers,” Rahim said during the first quarter earnings call, according to a Seeking Alpha transcript. “Customers across all verticals are developing strategies for moving to cloud service delivery models and this aligns with our strategy to power the cloud transformation.”

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Rahim added that Juniper’s “cloud solutions are addressing the cloud transformation across all of our key verticals.”

However compelling Juniper’s outlook is on the cloud services opportunity, overall first-quarter cloud revenues were a mixed bag.

Following what Juniper said was a record fourth quarter for this vertical, cloud revenues were $332 million, up 25% year-over-year, but down 19% sequentially. Juniper said the year-over-year increase was driven by the timing of deployments at several large customers. Switching, and to a lesser extent services, increased, partially offset by a decline in routing. The sequential decrease was primarily due to routing, partially offset by an increase in switching.

Rahim said that when it comes to switching and routing revenues for cloud applications, “the business is going to be lumpy.”

“A lot of the growth in the Q1 timeframe for example in the cloud vertical came in switching,” Rahim said. “But in the past, there were quarters were it has actually come in more from routing.”

Routing, switching ups and downs

Juniper reported varying year-over-year and sequential results for its routing and switching product revenues.

Routing product revenue was $521 million, up 3% year-over-year and down 20% sequentially. Juniper said the year-over-year increase was primarily due to an increase from its PTX products due to the ramp up of sales to telecom/cable and cloud customers and an increase from its MX products. On a sequential basis, the decrease was primarily due to cloud, and to a lesser extent telecom/cable.

“Our routing businesses always depended on large deals, large customers across the telco vertical and the cloud vertical, and for that reason, it's always been lumpy and I think we're seeing some of that dynamic more broadly,” Rahim said. “Routing is essentially a flattish type of overall market opportunity for Juniper and for our peers in this industry.”

Switching product revenue was $242 million, up 38% year-over-year and down 4% sequentially. The year-over-year increase was due to cloud and strategic enterprise. These gains were partially offset by a decrease in telecom/cable. Juniper saw continued data center strength with its QFX product family, which grew over 50% year-over-year and declined 1% sequentially.

“We are seeing continued traction in our QFX portfolio as customers across all verticals move to 100-gig, where we have industry-leading products,” Rahim said.

Security challenges

Once again, Juniper’s security segment continued to see revenue pressure in the first quarter, declining 10% year-over-year to $66 million.

Juniper attributed the year-over-year decrease due to soft telecom/cable revenues. Additionally, Juniper reported that its Screen OS and other legacy products and high-end SRX product family declined, but partially offset by new products. Finally, the sequential decline was primarily due to the high-end SRX.

Rahim said that while there’s growing momentum for the security segment, “it's just not fast enough to offset the decline in some of the older products.”

He added that the company is working to turn around the security segment’s revenue fortunes by the second half of the year.

“I expect in the second half of the year that we can get to growth,” Rahim said. “The big part of the focused effort right now is on rebuilding confidence, rebuilding the channel and of course, one win at a time, including new logos that we have just gotten in the Q1 timeframe.”

Here’s a breakdown of Juniper’s key Q1 2017 metrics:

Telecom/Cable: The telecom/cable unit reported $569 million in revenues, up 10% year-over-year but down 11% sequentially. Juniper said the year-over-year increase was driven by services and routing, but partially offset by a decrease in switching. Specifically, the increase was driven by APAC telecom and U.S. cable. On a sequential basis, the decrease was primarily due to routing, and to a lesser extent, security. U.S. Tier 1 and EMEA telecom declined, partially offset by an increase in U.S. cable and APAC telecom.

Strategic Enterprise: Enterprise revenues were $320 million, up 2% year-over-year and down 5% sequentially. Juniper attributes the year-over-year increase to higher switching revenues in APAC as a result of campus and branch deployments, partially offset by a decrease in routing in its national government segment. Sequentially, the decrease in national government was partially offset by an increase in financial services.

Financials: Juniper’s first quarter net revenues were $1.2 billion, up 11% year-over-year and a decrease of 12% sequentially. The company’s GAAP operating margin for the first quarter of 2017 was 12.8%, down from 13.5% in the first quarter of 2016. 

Juniper has forecast second quarter revenues to be about $1.28 billion, plus or minus $30 million.