Juniper says telcos are being cautious about next-generation equipment spending

Juniper may have reported strong switching revenues in the second quarter, but the vendor’s service provider unit is clearly seeing an impact from slower spending cycles by its major telco customers.

Rami Rahim, CEO of Juniper, told investors during its second-quarter earnings call that while it continues to talk to its telco customers about network architecture, none of them are biting yet.

Rami Rahim
Rami Rahim

“The engagement level with our telco customers is very high and it's all very much around new architectures, new ways of driving service revenues,” Rahim said during the earnings call, according to a Seeking Alpha transcript. “But the new mode of operation, the new build-out that drive these new modes of service delivery are just going to take some time. So we're not expecting anything materially different in the short term.”

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Juniper’s telecom/cable unit reported $562 million in revenues, down 2% year-over-year and down 1% sequentially. The company attributes the year-over-year decrease primarily to its routing segment, partially offset by increases in services and switching.

On a sequential basis, the decrease was also primarily due to routing, partially offset by increases in switching. Quarter by quarter, the U.S. cable segment declined, partially offset by an increase in U.S. and EMEA telecom.

Rahim said that revenue swings in the routing market are largely driven by the telco and cloud verticals, and those are “a tale of two cities.”

"Cloud is spending a lot on wide area networks, making sure their customers continue to get best experience overall," Rahim said. "We are seeing weakness in the telco vertical and that is a significant factor" of the decline in the routing segment.

Despite seeing growth trends in, Rahim is being cautious about future cloud opportunities.

“A lot of focus inside the company is maintaining the momentum in the cloud,” Rahim said. “However, we've always said that the Cloud vertical is going to have some lumpiness.”

Here’s a breakdown of Juniper’s key metrics:

Routing: Juniper reported $572 million in routing revenue, flat year-over-year and up 10% sequentially. On a year-over-year basis, the cloud vertical increased, offset by telecom/cable and strategic enterprise. The sequential increase was driven by cloud and strategic enterprise segments, partially offset by telecom/cable. Within the routing segment, the sequential results were driven by an increase from the vendor’s MX and PTX products partially offset by declines from its legacy products.

In routing, the MX had good year-over-year and sequential growth,” Rahim said. “And we also saw strength in our PTX products within our cloud customers and new insertions in telecom in the second quarter.”

Switching: Switching revenues were $276 million, up 32% year-over-year and up 14% sequentially. Juniper said all of the vertical market segments it serves rose year-over-year and sequentially. In particular, Juniper saw continued data center strength with its QFX product family and the EX product family increasing both year-over-year and sequentially.

Security: Security product revenue was $69 million, down 12% year-over-year and up 5% sequentially. The vendor noted that all of the verticals decreased year-over-year, a factor it attributes to telecom/cable and strategic enterprise customers, partially offset by a decrease in cloud.

Juniper says it sees the emerging SD-WAN segment being a potential driver for new security growth, adding that it’s still early.

“As we talk to our customers around SD-WAN, for example, one of the really differentiating attributes of our SD-WAN solution is that it has security embedded,” Rahim said. “So while we're starting to win opportunities in the SD-WAN space, we haven't yet seen the revenue that will help the security number, which I anticipate we will start to see in the future.

Strategic Enterprise: Enterprise revenues were $367 million, up 1% year-over-year and up 14% sequentially. The year-over-year increase was driven by higher switching and services, partially offset by decreases in routing and security.

Financials: Juniper reported net revenues of $1.31 billion, an increase of 7% year-over-year and sequentially.

The company has forecast revenue growth for 2017 to be near the midpoint of its long-term model range of 3 to 6%. For the second quarter, Juniper expects revenues will be approximately $1,320 million, plus or minus $30 million.