Juniper Posts Strong Enterprise, Weak Cloud Results
Juniper Networks (NYSE: JNPR) saw a marked reduction in orders from cloud service providers last quarter, but management insists the downturn is temporary. Meanwhile, enterprise sales are good, and service provider sales in the metro market are expected to soar.
These were some highlights of this week’s earnings report, in which the company posted higher than expected revenues of $1,372 million, up 17% year-over-year (y/y). Juniper reported adjusted earnings per share of 48 cents on income of $156.6 million, thanks in part to the sales beat accompanied by a gross margin of 57.8%.
In the vertical segment breakout, enterprise sales of $549.9 million, up 29% y/y, accounted for 41% of revenues; sales to service providers of $549.9 million, up 28%, accounted for 40%. But sales to cloud providers, which at $264.9 million accounted for the remaining 19% of revenues, were down 14% y/y.
The market reception was strong, with Juniper shares losing 3% in early trading today, down .96 to $30.02.
CEO: Cloud Order Slowdown Is Temporary
The problem with cloud, Juniper says, lies in an overall order slowdown of 30% for the quarter. Basically, customers over-ordered during the worst of the post-COVID supply chain crunch. Now they don’t need to order so much so often. Here’s how CEO Rami Rahim explained it on the recent earnings call:
“While order cancellations continue to remain extremely low, as supply improves we’re seeing more customers reschedule project timelines. This is proving to be particularly true in the cloud vertical, where certain customers are digesting prior purchases.”
Juniper expects to see cloud purchases normalize over time and does not attribute the buying delays to anything but adjustments in the timing of projects. Still, the order slowdown comes at a moment when the leading cloud providers are tightening their belts. Both Alphabet and Microsoft have been in cost-cutting mode, laying off about 12,000 and 2,700 respectively, reflecting the massive layoffs at Amazon (Nasdaq: AMZN) and Meta Platforms (Nasdaq: META).
Also telling are the numbers coming from key cloud titans. In its earnings report this week, Alphabet (Nasdaq: GOOGL) posted Google Cloud revenue of $7,454 million, up 28% -- robust growth but not the 44% reported during the first quarter of 2022. Microsoft (Nasdaq: MSFT), which also reported this week, posted Intelligent Cloud revenue of $22,081 million, up 16% compared to the 26% for last year’s corresponding quarter. And AWS parent Amazon (Nasdaq: AMZN) recently posted AWS cloud revenue of $21,354 million, up 16% y/y compared to 37% growth for last year's Q1.
The cloud order slowdown doesn’t seem to worry investors. Simon Leopold of Raymond James maintains his Strong Buy rating on JNPR. In a client note titled “Getting Back to Normal Should Not Be a Drag” he wrote:
"Cloud was weak, down (14%) y/y and (30%) q/q from delays around the start of new projects at hyperscale customers. Juniper notes that this is largely timing related and expects Cloud demand normalizes and accelerates towards the end of the year."
Enterprise Remains Strong
Where Juniper sees its most growth is in enterprise sales of software and switching equipment, a segment that reported the company’s strongest growth and largest sales figures. Within the segment, AI-driven enterprise software was a standout, growing at a rate of 48% y/y. Included in this mix is Juniper's Mist Wired Assurance (aka Mist AI) software acquired with the purchase of Mist Systems in 2019, which provides automated management for the firm’s EX series switching equipment. Management said Mist AI sales were up 60% y/y.
Switches equipped with the company’s Apstra software are also especially attractive, Rahim said. Apstra’s intent-based networking capabilities, along with its SONiC features, are leading to datacenter switch sales, he noted. “Hardware pull-through is quite large,” he said. “Apstra is the tip of the spear.”
The Metro Mammoth Looms
Juniper’s management is also bullish on its emerging metro switch and routing solutions. Upgrades to 400-Gb/s are in the early stages, execs said this week. Still, they are citing “triple-digit” order growth in metro portfolio of ACX 7 devices powered with Paragon automation software. They expect momentum to build through this year, becoming material to revenue in 2024 and beyond.
Juniper’s predictions for its metro solutions echo claims recently made by Ciena (NYSE: CIEN) during its announcement of the WaveRouter metro router. Ciena’s new architecture and its strength in optics makes it a formidable rival to Juniper and its other competitors, including Cisco (Nasdaq: CSCO) and Arista Networks (NYSE: ANET).
Juniper clearly faces competition, but its leading position in enterprise routing and switching, its clear path to AI and the metro edge, bode well for its claim to sizable market share. As for the cloud providers, the pace may be slowed but the race is still on.
