If you squint real hard and tilt your head a little bit, you can see the difference between this year's fourth quarter at Juniper Networks and the quarter it turned in a year ago as 2011 came to a close.
In the quarter ended in December, Juniper's product sales were down a barely perceptible two-hundredths of a point to $847.3m, while services revenues rose 7.4 per cent to $293.5m. After paying out higher research, development, sales, marketing, and general costs, however, most of that extra services revenues were eaten up and net income actually fell by half a point to $95.7m.
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In a call with Wall Street analysts after the markets closed on Thursday, Juniper's top brass spent a fair amount of time going over their plans to innovate in switching and routing while at the same time moving more aggressively in the software-defined networking, security, and cloud areas – plans that Juniper discussed at length with partners last week.
As you might expect, just like archrival Cisco Systems, Juniper has its own take on SDN and it does not involve solely embracing OpenFlow protocols and Open vSwitch virtual switches and ceding the market to a bunch of software upstarts.
Like Cisco, Juniper thinks it has better software and better ideas and that it can cherry-pick parts of the opening network stack and pit its own software against the rest. If you were Cisco or Juniper, you would do the same thing. Your ego and your business model would demand it.
Robyn Denholm, CFO at Juniper, said in the call that Juniper's backlog was $410m as the quarter came to a close, up 37 per cent year-on-year and that deferred revenues had increased as expected in the quarter. Juniper's sales to service providers were up 9 per cent in the quarter, to $740m, and Denholm said that telecom giant Verizon accounted for more than 10 per cent of its sales in the quarter and for the full 2012 year.
Sales of products to enterprises, on the other hand, took a 10 per cent dive in the quarter, to $401m. Juniper said that its MX series of routers saw "significant growth" in the quarter, driven by adoption on the edge of networks and by service providers specifically, and that the growth offset declines in the M Series and E Series routers that are being phased out.
The PTX Converged Supercore switch also contributed to growth on the switching side of the Juniper house. Routing products drove $531m, up 3 per cent, while switching products drove $146m, down 6 per cent year-on-year. But, said Denholm, revenue was flat sequentially from Q3, orders are up, and the backlog is strong for switching. And thus, Wall Street should not be bothered.
On the security appliance front, Juniper's overall security product sales were down 4 per cent to $170m, with branch SRX appliance sales up 17 per cent but high-end SRX sales falling 19 per cent.
Denholm said that Juniper continues to be optimistic about new switch and router products, with the PTX Converged Supercore and the T-4000 core routers plus ACX access routers and QFabric and MobileNext software would combine for an annual run rate of $150m as the fourth quarter of 2013 came to a close, and based on initial orders and backlogs, which were half that run rate as 2012 came to a close, Denholm said that the company was on track to hit that target.
In the quarter, Juniper did well in the Americas, less so in Asia and much worse in Europe. In the December quarter, Juniper posted $607m in revenues in the Americas region, up 16 per cent and driven by the strength of sales at service providers, while sales in Asia fell 2 per cent to $195m due to weakness among Chinese service providers.
While there were early signs of improvement in the demand environment in EMEA, Denholm said that this part of the globe had a 15 per cent hit to $339m in the fourth quarter.
For the full year, Juniper's overall sales were down 1.9 per cent to $4.37bn. Product sales fell by 6.2 per cent to $3.48bn, but services revenues rose 13.7 per cent to $1.1bn. But, thanks to difficulties earlier in 2012 that led to the company restructuring and doing layoffs in October, profits were down 56.1 per cent for the year to $186.5m.
Juniper is expecting sales to be between $1.05bn and $1.07bn in the first quarter of 2013.
The reality is that server and storage virtualization is making customers think hardware about their network strategies and intense competition among Cisco above Juniper and the server incumbents who now all have their own switching businesses are making it difficult for Juniper. The networking business is already hard enough, and now SDN and virtual switching is coming along to upset the applecart.
Maybe Juniper should buy a server business? Silicon Graphics could use a switching business. Juniper has $2.41bn in cash and could probably eat both SGI and Cray. SGI has a market cap of $397m and Cray is worth $716m. Call it $1.5bn and Juniper could transform itself into a provider of big shared memory systems and hyperscale clusters to chase all kinds of workloads.
All the cool kids are doing converged systems. OK, maybe they actually are not that cool. But every server maker has its own switches and Cisco has its own servers.
Juniper could do something really crazy like get on the front-end of the ARM server wave, license ARM cores, and do integrated computing and switching like ARM server chip upstarts Calxeda and Applied Micro Circuits are doing.
And instead of trying to peddle the technologies to the Dells, HPs, and IBMs of the world, Juniper could pull a Cisco and just realize that it has plenty of its own customer accounts and just try to take over the data centers there. ®