U.S. service providers fueling Juniper’s revival

Infotech Lead India: Juniper’s revenue and margins increased from 1Q12 thanks to strong spending by U.S. telecom and cable operators.

AT&T and Verizon each comprised more than 10 percent of Juniper’s total revenue in 1Q13 and both operators are expected to continue increasing their spend with Juniper through 2013 as they enhance their core and edge networks with next-generation routers and switches as well as implement Juniper’s security platforms.

Most of the revenue Juniper obtains from AT&T and Verizon comes at a higher margin than the company’s average, which, when coupled with Juniper’s cost savings from restructuring, led to a 190 basis point increase in gross margin and 360 basis point increase in operating margin in 1Q13.

Weakness in U.S. public sector to weigh on Enterprise results through 2013

Juniper’s sales to the U.S. Federal government plunged 25 percent year-to-year and kept the Enterprise business from growing in 1Q13.

The U.S. Federal government is one of Juniper’s largest enterprise customers and the continued weakness in the public sector will continue to drag on the company’s overall results through 2013.

Specifically, the Federal government has been curtailing discretionary projects and stretching out the duration of or reducing scope of critical projects in an attempt to conserve capital.

Security was worst performing portfolio segment in 1Q13

Juniper’s security software sales fell $31.5 million, or 18.7 percent, year-to-year to $136.7 million in 1Q13. Juniper attributed $20 million of the decline to a product transition of a large service provider customer (likely AT&T or Verizon) with the other $11.5 million decline stemming from enterprise.

Security sales tend to be lumpy and are driven by new product deployments and or upgrades of existing infrastructure. Juniper maintains that security is a critical component of the firm’s long-term strategy and will continue to invest heavily in this area of its portfolio.

Chris Antlitz, Networking & Mobility Analyst, Technology Business Research

[email protected]

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