Driven by better results in its service provider and enterprise sectors, Juniper Networks slightly exceeded analysts’ expectations for its Q3 results.
On a year-over-year basis, Juniper’s service provider revenue grew 5%, showing year-over-year growth for the first time in 13 quarters, with close to a 9% increase over the previous quarter.
Over the past several quarters, the service provider sector has been an anchor on Juniper’s revenues, but it has shown steady improvement. Third quarter revenues for the service provider division grew to $475.1 million from $452.5 million a year ago despite supply-chain issues related to the coronavirus pandemic.
Service provider revenue was driven by router and switching sales, but were partially offset by a decline in the security sector. Of the top-10 customers in the third quarter, four were cloud providers, five were service providers and one was an enterprise.
“Although we are continuing to see some COVID-19 related capacity benefits, we believe the primary driver of the service provider strength we are seeing continues to be our efforts to diversify this business across customers, products and geographies,” said Juniper CEO Rami Rahim on Tuesday’s earnings call, according to a Seeking Alpha transcript. “Similar to Q2, we continue to benefit from the strength with our U.S. cable customers as well as Tier 2 and Tier 3 carriers in international markets.
From the glass is half empty perspective, Rahim said based on Juniper’s Q3 results and Q4 pipeline, “we continue to believe our service provider business is likely to see a mid single-digit decline in 2020.”
According to a Credit Suisse earnings analysis, Juniper can expect continued pressure in the service provider sector due to Cisco’s recently announced Series 8000 edge routers and its Silicon One chip that was announced near the end of last year. While Rahim was bullish on Juniper’s 400G prospects, Credit Suisse noted there’s a more competitive landscape due to white box vendors, along with offerings from Cisco and Arista.
Juniper posted a sequential increase of 12.5% in its enterprise sector with revenues improving to $410 million from $408 million a year ago. After five consecutive quarters of year-over-year growth, cloud revenues decreased from $271.9 million to $253.1 million.
“Strength in our service provider and enterprise verticals more than offset a 7% year-over-year decline in cloud,” said Juniper CFO Ken Miller. “We saw revenue in all geographies grow on a sequential basis. From a technology perspective on year-over-year basis, routing increased 6%, while switching decreased 5% and security decreased 23%. Our services business grew 4% year-over-year.”
Juniper reported third-quarter profit before certain costs, such as stock compensation, of 43 cents per share on revenue of $1.14 billion. Wall Street analysts had forecast earnings of 43 cents per share on slightly lower revenue of $1.12 billion.
For the fourth quarter, Juniper guidance for its earnings was a range of 48 to 58 cents per share on revenue of $1.14 billion to $1.24 billion. Wall Street analysts forecast earnings of 53 cents per share and $1.19 billion in revenue.
“We’re executing well in the current environment,” Rahim said. “We firmly believe we are taking share, and that our technology differentiation along with our investments and go-to-market are enabling us to win at a time when challenging market conditions have adversely affected our competitor.”
Going forward, Juniper expects last week’s deal to buy SD-WAN vendor 128 Technology for $450 million will add nearly a point to revenue growth on a full year basis in 2021 while also driving bigger gains in its enterprise sector.
“Our agreement to acquire 128 Technology represents the next step in our AI driven enterprise evolution,” Rahim said. “128 Technology is truly unique and offers customers material benefits over any alternative SD-WAN solution today. Some of the benefits include much lower hardware costs, much lower latency and significantly lower bandwidth costs. In addition to these benefits, customers will see application performance improve and users will receive a better overall experience.
“128 Technology’s user-centric SD-WAN is a perfect complement to our AI driven enterprise solution, delivering market leading insights and automation from clients to cloud. I expect our enterprise momentum to build in accordance to come and believe this business is positioned to not only grow organically and take share in 2020, but also in 2021 and beyond.”