Telecom network vendor Juniper Networks is diversifying its customer base to include a higher share of cloud and cable providers, says Patrick Filkins, research analyst, Telecom and Enterprise Networking at Technology Business Research.
Juniper’s Q3 2015 revenue growth indicates efforts to diversify its customer base are working. Juniper notes that of its top ten customers in Q3 2015, five were telecom, four were cloud or cable providers and one was enterprise. Juniper’s Service Provider segment, which include telecom, cable and cloud providers, grew 8.5 percent year-to-year.
Juniper’s publically announced contract with AT&T in the quarter indicate the company will take a leading role in service provider transformation in the U.S. Juniper is also working with American telecom network operator Verizon on SDN.
Juniper noted strong product growth, up 13.4 percent year-to-year. Routing and Switching revenue grew 13.4 percent and 29.9 percent, respectively. However, Security remains a challenged market as revenue declined 1.4 percent, year-to-year. TBR expects Security revenue to remain volatile through 2015 as Juniper implements an integrated security strategy to capture new contracts.
Primarily due to restructuring over the last year, which resulted in lower operating expenses, Juniper’s operating margin grew 540 basis points year-to-year, to 20.7 percent. TBR expects Juniper to continue eliminating organizational redundancies to reach its stated goal of 25 percent operating margin.
Juniper introduced the Unite reference architecture, its answer to bridging the data center and campus domains
Historically, Juniper’s growth has been attributed to a higher volume of point sales from its portfolio. However, in recent quarters Juniper experienced slower growth than major rivals, including Cisco and Alcatel-Lucent, primarily due to challenges in winning more comprehensive and lucrative infrastructure contracts.
To improve its ability to capture larger-scale engagements, Juniper is integrating its routing, switching and security portfolios into broader solutions, such as the updated version of the Converged Supercore Architecture to drive consideration for larger core networking contracts. The latest example of this strategy is the recently announced Unite reference architecture. Unite is designed to enable simplified deployment of cloud-ready network infrastructure across the data center and into branch offices. Unite pulls from Juniper’s Routing, Switching and Security portfolios, combining Junos Fusion Enterprise OS, EX switches, MX edge routers, SRX and vSRX branch routers and security solutions.
Additionally, Juniper leveraged partnerships with Aerohive, Aruba and Ruckus for WLAN and Microsoft for unified communications to round out the solution. TBR expects Unite to attract attention from large enterprises and position Juniper to compete on more equal footing with enterprise market leader Cisco.
As Juniper faces increased pressure from investors, TBR believes the company is well-positioned to survive if it chooses privatization
Juniper emerged from activist-induced restructuring over the past year (Integrated Operating Plan) with a stronger balance sheet and operating metrics, but will need to continue innovating to drive growth and mitigate the negative effects of hardware commoditization on margins. A logical next step is to consider privatization, affording the company the flexibility to restructure further or shift investment towards longer-term strategic objectives such as SDN and NFV.
Recent examples of competitors to go private in the name of innovation include Dell, in 2013, and Riverbed, in 4Q14. TBR believes Juniper’s position as a premium networking supplier would remain unaffected if the company chose to remove itself from public markets and investor scrutiny.
By Patrick Filkins, research analyst, Telecom and Enterprise Networking at Technology Business Research
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