Juniper Q2 Profits Decline On Mixed Product Sales, Sluggish Market

Juniper Networks on Tuesday reported lower-than-expected growth in year-over-year second quarter revenue and earnings as well as a lowered guidance, causing investors to severely punish the company's stock prices in after-hours trading.

Macroeconomic factors and a drop in Juniper's service layer technology products including its security offerings led to investor concerns despites the networking company's strong core product growth.

Juniper also said it expects its sales through a long-term relationship with Dell to continue despite the potential complications caused by Dell's announcement last week of its intent to acquire rival networking product vendor Force10.

For its second quarter, which ended June 30, Juniper reported revenue of $1.1 billion, up 15 percent over the $978 million the company reported during the second quarter of 2010.

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This included a 21 percent increase in router product and services revenue to $762 million, as well as a 33 percent jump in switch product and services revenue to $122 million. However, these were offset somewhat by a 9 percent drop in service layer product and services revenue to $236 million.

Revenue from North America grew 17 percent to reach $579 million.

Juniper also reported income for the second quarter of $115.6 million, or 21 cents per share, which was down 12 percent from the $130.5 million or 24 cents per share it reported last year. Analyst consensus for the quarter had been for Juniper to earn 27 cents per share.

Looking forward, Juniper expects third quarter revenue to be between $1.017 billion and $1,120 billion, or nearly flat compared to last year's third quarter. The company also expects non-GAAP earnings per share of between 26 cents and 30 cents, down sharply from last year's reported 32 cents per share and analysts' consensus of 31 cents per share.

"We believe the long-term fundamentals of our business remain strong," said Robyn Denholm, Juniper CFO.

Investors reacted sharply to Juniper's second quarter results and full-year expectations, driving the company's stock price down nearly 17 percent to $25.99 per share in after-hours trading about three hours after markets closed.

Juniper CEO Kevin Johnson cited several factors impacting the company's second quarter results and full-year 2011 guidance.

On the macroeconomic side, the European debt situation, uncertainty in the Japanese market after this Spring's massive earthquake and tsunami, and continued consumer weakness held back business during the second quarter.

Business in the second half of 2011 could be impacted in four ways, Johnson said.

The first is the guidance being provided by service providers, which are not following normal historical patterns. They have been guiding revenue for the first half and second half of 2011 that is about equal, whereas the historical guidance called for 55 percent to 57 percent of revenue to be recorded in the second half, Johnson said.

Juniper is also predicting some impact from lower enterprise and government customer IT budgets as well as from a lack of clarity as to when Japan's capital investment will restart, Johnson said.

Johnson also said that Juniper also saw some sales opportunities that were expected to close in the second quarter actually close early this quarter. "This is a signal to us that customers are aware of the macro situation in deciding which side of the boundary to land on," he said.

Next: Reasons For Optimism, Reactions To Dell/Force10

However, Johnson tempered that with some optimism which he said is coming from a strong-growing mobile Internet and cloud business combined with some new products expected to be available in the second half of the year and early next year.

Johnson said Juniper's upcoming QFabric architecture has received several significant wins, and is expected to be released by the end of the third quarter.

Juniper is also seeing continued growth in its core router and switch business, which Johnson said increases momentum for the company's other products.

He also cited recent realignments of the company's system division and the hiring of former Microsoft software solutions head Bob Muglia, along with a recent realignment of the company's top sales executives, as positive impacts on Juniper's business going forward.

When asked during the question-and-answer portion of Tuesday's analyst conference call about the impact Dell's pending acquisition of Force10 might have on Juniper, Johnson said the relationship is more complicated than in the past but that the impact should be limited.

OEM sales to both IBM and Dell have not kept up with those two partners' sales of Juniper-branded products, Johnson said.

He also said he had a call with Michael Dell, chairman and CEO of Dell, after the Force10 acquisition was unveiled, during which the two agreed that they would work to grow their companies' relationship.

"I agree it's more complicated now because of the overlap in products. . . . Our intent is to create a good relationship with Dell," he said.