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Juniper to Trim Employee Strength

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According to a regulatory filing, networking solutions provider Juniper Networks (JNPR) is set to downsize its employee strength by 6% and focus on high margin businesses — routing, switching, security, control and network management — as part of its business realignment plan.

Most of the job cuts, targeted at middle-level management, will be effective immediately. Juniper had approximately 9,500 employees at the end of 2013 and approximately $35 million charge will be incurred in the fiscal first quarter of 2014 for the proposed terminations. The company plans to pay these charges in cash.

The company will also stop developing products related to the delivery of web pages, which will result in a non-cash intangible asset impairment charge of approximately $85 million to be incurred in the first quarter.

However, the current one-time cash charges related to employee severance will have a near-term impact on Juniper’s operating expenses in turn lowering profitability. Nonetheless, the company has a strong cash flow generating ability and cash balance of over $2.28 billion. Moreover, the company has a regular buyback plan which would lend support to earnings per share.

Separately, Juniper has been under pressure from Elliot Management Corp and Jana Partners LLC to cut expenses and increase cash payouts to its share holders. This prompted the company to announce a capital allocation strategy to return $3 billion over the next three years. Among several proposed cost-cutting initiatives, Juniper will consolidate 12% of its leased properties.

While the company’s new products, cost reduction initiatives and improving execution remain the growth catalysts, increasing competition from Cisco (CSCO), AT&T (T) and F5 Networks Inc. (FFIV), uncertain economic conditions and constricted federal spending are the possible headwinds.

Nonetheless, we believe that increased spending by service providers should support Juniper’s near-term fundamentals. The company’s expansion into the software defined network segment is expected to strengthen its position in the networking space.

Currently, Juniper enjoys a Zacks Rank #1 (Strong Buy).

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