On Jan 15, we issued an updated research report on Juniper Networks, Inc. (JNPR).
Juniper is capitalizing on the growing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence. The company recently collaborated with VMware, Inc. (VMW), an industry-leading virtualization software company, to provide private cloud-based solutions across the Asia Pacific (APAC) region.
The partnership involves VMware NSX L2 Gateway integration and VXLAN routing products that enable connection within and between data centers and speed up the transition to software-defined networking (SDN).
The increasing complexity in cloud infrastructure led to growing demand for SDN solutions. These solutions increase the flexibility of the infrastructure and reduce costs for companies. It is expected that the lower-cost proposition will lead to quicker adoption of SDN technology, which bodes well for suppliers such as Juniper.
Juniper entered the SDN space with the acquisition of start-up Contrail Systems (Dec 2012). According to IDC, the SDN space is expected to generate $3.7 billion in revenues by 2016. We believe that Juniper’s expansion into the SDN segment will strengthen its market position.
To complement its growth prospects, Juniper has been successfully developing global channel partner and strategic reseller relationships with Ericsson, International Business Machines (IBM) and Nokia Siemens Networks. These partnerships will help Juniper enhance its reach and expand the customer base.
Furthermore, Juniper is expected to benefit from the higher spending pattern of carriers to upgrade their networks to support the incremental growth in data traffic. Increased spending by AT&T (T) and Verizon — Juniper’s two large customers — are expected to aid its top line, going forward.
However, we remain cautious as Juniper delivered tepid third-quarter 2014 results. The company’s revenues went down 5% to $1.13 billion from the year-ago quarter. Total revenue was impacted by weaker-than-expected demand from U.S. service providers. Also, revenues from the APAC region were down 27.9% on a year-over-year basis. Adjusted earnings came in at 22 cents, which lagged the Zacks Consensus Estimate of 26 cents.
The company also provided tepid fourth-quarter revenue guidance. Juniper expects revenues in the range of $1.025 to $1.075 billion, down sequentially. The Zacks Consensus Estimate is pegged at $1.068 billion.
While the company’s new products, cost reduction initiatives and improving execution remain the growth catalysts, charges related to the company’s restructuring initiatives are expected to impact near-term profitability. Competition from Cisco and F5 Networks also remains a concern.
Currently, Juniper Networks carries a Zacks Rank #3 (Hold).
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