Juniper Says Network Demands Increasing Despite Downturn

The recession might be slowing even the traditionally downturn-resistant networking market, but Juniper told investors it expects to grow its share.

By Sean Michael Kerner | Posted Jan 30, 2009
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Juniper Networks has some hard news for investors on Thursday, indicating that the market for networking equipment -- previously seen as somewhat resistant to the downturn in IT spending -- is also feeling the effects of the recession.

Yet there's still a reason for optimism: In spite of the current economic slowdown, demands on networks continue to grow -- a fact that Juniper, which reported fourth-quarter and year-end results on Thursday, is counting on to help it weather the storm.

Juniper's full-year revenues grew 26 percent to $3.57 billion. That led to $511.7 million in net income, or 93 cents per share -- an improvement over the $360.8 million or 62 cent per share it reported for 2007.

But during fourth quarter, Juniper missed Wall Street's revenue expectations, raking in $923.5 million -- an increase of 14 percent, but less than the $936.5 million analysts had been anticipating, according to Reuters Estimates. Excluding one-time charges, fourth-quarter income increased 80 percent to 32 cents per share, in line with estimates.

The grimmest news, however, came when Juniper CEO Kevin Johnson cautioned that many of the company's service provider customers are delaying the delivery of equipment to spread out capital expenditures -- a signal that the downturn that has stung other major IT areas has finally impacted networking.

"Bookings came in later in the quarter compared to past fourth quarters," Johnson said. "Some customers have placed orders with future ship dates in and even beyond Q1."

As a results of the pushed-back delivery environment, as well as the overall macroeconomic climate, Juniper's CFO, Robyn Denholm, doesn't expect the first quarter of 2009 to be all that rosy. Denholm provided analysts with Q1 2009 guidance that revenue would be flat to down 3 percent, which translates into a range of $800 to $830 million.

"We do see changes in demand patterns including placing orders but requesting delivery out over longer periods," Denholm said. "We also anticipate the macroeconomic impacts to add to the normal Q1 seasonality in the enterprise business."

Yet Johnson still found several trends that he sees working in Juniper's favor.

"Service provider demand for high-performance networking continues to grow as IT traffic is nearly doubling every two years," Johnson said on Juniper's investor conference call. "The math behind the demand equation is simple: an increased number of subscribers, times an increased number of minutes per subscriber, times an increased number of bits per minute, driven by content such as video. This equation is driving demand for high-performance networks."

The industry will also be looking ahead to when Juniper's arch rival Cisco reports its earnings. The networking leader is slated to release its results Feb. 4.

Strong 2008 and reasons for optimism in 2009

Juniper rolled out a number of new carrier and enterprise products during 2008 that helped to boost its bottom line. In the enterprise space, 2008 marked Juniper's entry in to the switching space with its EX series switches -- an area that Juniper intends to expand upon in 2009.

"Our entrance into the adjacent $20 billion switch market is providing us additional share growth opportunities," Johnson said. "We are expanding our switch offerings with the introduction of the EX8208, which has completed testing." The EX 8208 will be a high-end switch with a total capacity of up to 6.2 terabytes per second.

Juniper also debuted its new Dynamic Services Architecture during the year, with its SRX series, which competes against Cisco ASR (Aggregation Services Router) hardware.

On the carrier side of the business, Juniper continued to challenge Cisco with new MX series services for carriers to get more our of their networks.

Moving into 2009, Johnson said he expects that the trend toward cloud computing and increasing larger datacenters is something that will help fuel growth for Juniper as companies seek a lower cost per unit of compute cycle. The move toward the cloud is also driving convergence in the datacenter as well.

"You see the whole convergence of compute fabrics with storage fabrics with network fabrics that run the centralization of these big datacenters, and my view is that's not just a short-term 2008 phenomenon," Johnson said. "That is a phenomenon that will continue over the next five to seven to ten years, and that is one that also plays right to our strength. It plays to our strength of world-class networking at scale."

Article courtesy of InternetNews.com

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