Partners: 5 Reasons Why Juniper Networks Is Lowering Revenue Estimates

Cause For Concern

Ahead of Juniper Networks' April 28 quarterly earnings call, channel partners sounded off on the potential reasons why the networking vendor recently lowered its preliminary revenue estimates by upward of $100 million. Reasons they suggested include heavier competition from the newly formed Nokia-Alcatel-Lucent combination as well as Juniper's slowing down orders because of internal technology migration.

"In the last quarter, they did the final phases of their Oracle-SAP migration -- that was challenging for us and a lot of their customers," said Chris Becerra, president and CEO of Terrapin Systems, a Morgan Hill, Calif.-based Juniper partner. "They weren't processing orders in a very effective manner."

The Sunnyvale, Calif.-based network vendor gave an initial first-quarter revenue guidance of $1.15 billion to $1.19 billion, but is now expecting it to be in the range of $1.09 billion to $1.1 billion.

Nokia-Alcatel-Lucent Merger Turning Up The Heat

"Alcatel-Lucent was a competitor, and now with a Nokia-Alcatel-Lucent [merger] -- that was disruptive to [Jupiter], because Nokia was a pretty big reseller partner for Juniper, particularly in Europe," said George Miller, vice president of sales at Integration Partners, a Lexington, Mass.-based solution provider and Elite Juniper partner.

In April, Nokia confirmed plans to acquire Alcatel-Lucent in an all-stock deal valued at around $17 billion. Nokia shareholders approved the acquisition and the two companies began working together in January.

"I'm sure it's going to be rocky for these first couple quarters. Maybe that's part of the lowered guidance," said Miller. "Now they've got to go retrench themselves with the end customer to make sure Juniper doesn't get blown out. … But Juniper does a really good job in building relationships with customers and winning business."

Migration Pause Could Have Caused Disruption

Solution providers said Juniper completed its final phases of internal migration to Oracle SAP, which put a strain on the ordering process for the channel and distribution.

"That was challenging for us and a lot of their customers," said Terrapin Systems' Becerra. "They weren't processing orders in a very effective manner. … It just slowed a lot of things down. It didn't matter if you were placing orders through distribution, everyone was affected by the migration."

The planned shutdown "definitely won't help" Juniper revenues for its first quarter, said Becerra.

In a statement to CRN, Juniper said the company invested in "upgrading key systems and processes" which took place during the first half of January. "As is typical during transitions of this nature, certain customers may have experienced a temporary reduction in service," said a Juniper spokeswoman.

Lower-Than-Expected Enterprise Sales

Juniper said the lower guidance is "due primarily to weaker than anticipated demand from Enterprise and timing of deployments of certain U.S. and EMEA Tier 1 Telecoms," according to the 8-K SEC filing. Juniper now expects shares of 35 cents to 37 cents, compared with its previous guidance of 42 cents to 46 cents per share.

Integration Partners' Miller said Juniper is "winning in a big way in the enterprise," and his company is seeing more wins than ever against its main competitor, Cisco. However, he said, Juniper needs to invest more in ramping up its enterprise push.

"The hard part is there's still a ton more they have to go capture," Miller said. "For Juniper, it's about the extension of their sales team, which they've been fairly conservative on. It's the extension of their marketing plan, which -- they've always been a very conservative company -- they're an engineering-focused company. It's about getting out to the market with the channels."

Enterprise Security Not Sticking, Yet

Juniper has made some significant investments in the cybersecurity space over the past few years, although partners say it's not been sticking in the enterprise as much as the vendor might have hoped during the first quarter of the fiscal year.

"[Enterprise] customers haven't thought about Juniper in a couple years as it pertains to security. We'll see if they start to think about them again, since Juniper has caught up and has a real answer in the next-generation firewall technology area that they haven’t had in two or three years," said Becerra. "I haven't seen the enterprise making a move in that direction yet. … It's going to take some time to see if customers are willing to look at them."

No M&A For Massive Revenue Growth

Partners say Juniper wants to remain an independent company and is unlikely to make a significant acquisition in the market, such as Mitel's acquiring Polycom for nearly $2 billion or Brocade Communications' $1.2 billion purchase of Ruckus Wireless.

Brocade's and Mitel's recent acquisitions, as well as the Nokia-Alcatel-Lucent merger, create combined companies with massively increased revenues. Although Juniper did acquire software networking specialist BTI Systems, the lack of major acquisitions over the years might be the reason why investors aren't better too heavily on Juniper for the time being.

After the lowered earnings estimate, Juniper shares dropped more than 8 percent in after-hours trading. Financial firm UBS downgraded Juniper from Buy to Neutral, cutting the price target from $31 to $25. Goldman Sachs also lowered its price target for Juniper from $33 to $31.

"We have longer-term structural concerns with Juniper being caught between a much larger Cisco and a more nimble Arista," wrote UBS analyst Steven Milunovich. "We don’t see Juniper growing revenue meaningfully in the enterprise."