Juniper Earnings Preview: Better Demand, New Products To Drive Sales

Juniper is scheduled to report its third quarter earnings on Thursday, October 22. Despite the headwinds it has been facing, Juniper was able to reduce the magnitude of revenue declines for its three struggling divisions – routing, switching and security – in the second quarter of the year, thanks to an improvement in demand, better product performance and the recognition of deferred revenues. In the third quarter, we expect the company’s performance to see a further improvement, driven by an increase in capital spending by carriers and a larger contribution from new products. In fact, Juniper has mentioned recently that it expects routing and switching sales to rebound in the second half of 2015.

In the first half of 2014, Juniper’s routing sales saw high-single digit growth over the prior year period, driven by consistent capital spending by carriers due to the proliferation of mobile devices and high-quality video content on the web. However, the segment has since struggled due to sluggish demand from U.S. carriers in the core and edge router markets. Nevertheless, the capital spending environment began to improve in the second quarter and is expected to get better in the second half of the year, which bodes well for Juniper. Additionally, a realigned switching strategy, strong performance from new products and a strong software defined networking platform are likely to drive switching sales in the third quarter.

Our $28 price estimate for Juniper is slightly below the current market price.

Improved Demand To Drive Results

For a while now, Juniper has been optimistic that U.S. service provider demand will improve notably during the second half of 2015. There was some improvement in carriers’ spending in the second quarter, which helped the company bring down the intensity of its revenue decline across segments. During the recently concluded third quarter, demand likely improved further as carriers increased spending to put their newly licensed wireless spectrum to use.

The Federal Communications Commission auctioned about 1,600 licenses as part of its AWS-3 auction in January this year, which generated a record breaking $41.3 billion in revenue for the U.S. government. Verizon and AT&T, Juniper’s major clients, emerged as the top players in the auction, with about 70% of the winning bids between the two. For the third quarter, both Verizon and AT&T are likely to have seen healthy capital spending, which would benefit Juniper’s financials.

Juniper also expects to see a rise in demand from international enterprise customers looking to build and expand their networks. In addition, cloud and cable customers are also likely to contribute to the increase in demand for network equipment. Though these factors are likely to be more significant in the long run, they should have had a marginal impact on the demand in Q3 as well.

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