Can Juniper Networks be revived under CEO Rami Rahim?

Juniper Networks India
Its seems Juniper Networks CEO Rami Rahim does not have a strong strategy in place to improve revenue growth of the US-based networking company.

Juniper Networks said its revenues reached $1,221.3 million in the second quarter of 2016, showing flat year-over-year and 11 percent sequential growth.

Telecom service provider business contributed $835.4 million, while enterprise business chipped in $385.9 million revenue, said Juniper Networks.

Juniper Networks’s operating margin for the second quarter of 2016 fell to 16.7 percent from 19.9 percent in the second quarter of 2015. Juniper posted net income of $140 million (–11 percent).

Rami Rahim, chief executive officer at Juniper Networks, said there is no shortage of appetite for network innovation. “Our diversification strategy and differentiated portfolio enabled us to deliver sequential growth across all geographies, technologies and sectors.”

Juniper Networks generated $574.7 million revenue from routing, $209.2 million from switching and $78.2 million from security business. $720 million came from America, $300 from Europe, Middle East, and Africa and $200 million Asia Pacific region.

Michael Soper, analyst at TBR, says Juniper faces an uncertain path to growth following flat revenue in Q2 2016.

Juniper Networks posted flat revenue growth overall in Q2 2016 as the company’s key strategies of diversifying sales both geographically and on a customer segment basis delivered mixed results. Juniper grew sales by double digits in APAC, but eight of its ten largest customers remain U.S.-based.

Additionally, revenue from cloud and cable providers fell, while the company’s legacy telecom base increased spending with the vendor. With the geographic mix shifting toward APAC and Juniper transitioning elements of its portfolio to prepare for a software-mediated world, gross margin shrank 200 basis points year-to-year to 61.9 percent and operating margin declined 320 basis points to 16.7 percent.

Juniper Networks faces both short and long-term tests to its revenue growth and margins. In 2016, the company remains challenged by lower volume from its reseller agreements with Ericsson and Nokia as both have moved on from Juniper’s products to sell Cisco’s and Alcatel-Lucent’s portfolios, respectively.

In the long-term, Juniper’s embrace of open-source networking – which TBR believes is necessary to survive – will drive down sales of proprietary routers and switches, which will compress margins. Juniper is ahead of peers in open-source following its 4Q15 announcement that it plans to disaggregate its Junos OS from its hardware, but this will accelerate sales declines for its proprietary hardware as customers increasingly embrace white-box solutions over the next several years.

Juniper builds on its Unite architecture for campus and branch networks to capture new spending from enterprise customers

Juniper is balancing customer demand for open-source solutions with its own desire to sell through proprietary network hardware. In late 3Q15 Juniper launched its Unite reference architecture, a virtualized suite of solutions designed to reengineer enterprise campus networks into cloud-based service platforms. Unite runs on Juniper hardware, but brings in partner solutions for unified communications (Microsoft) and WLAN (Aerohive, Ruckus, Aruba).

Facing competitive pressure from Cisco’s launch of its own campus-focused Digital Network Architecture (DNA) solution, Juniper is further embracing cloud-enablement as a means to appeal to large enterprises. In June the company unveiled its Cloud-Enabled Branch (CEB) solution, which includes software-defined wide area network (SD-WAN) functionality, building on the value of its Unite architecture. CEB integrates with Juniper’s SRX firewalls, which will drive existing SRX customers to consider migrating to CEB to create an all-in-one branch solution. Juniper is gradually open-sourcing its portfolio as it helps customers migrate to cloud architectures in order to protect its high-margin hardware lines of business.

Juniper’s SDN controller business is growing, spurred by customer demand for open source solutions

Supported by a strong reference win in 4Q15 with AT&T to supply its Contrail Networking portfolio, Juniper is emerging as a leading supplier of SDN controllers and cloud management platforms. Juniper’s Contrail controllers are vendor-agnostic and interoperable with competitor architectures.

Although Juniper’s early traction is primarily with telecom and cloud providers such as AT&T and STC, in May eBay Classifieds selected Juniper to supply its Contrail Networking portfolio, adding a notable webscale player. Juniper leverages wins for its virtualized solutions, which run its JunosOS, to cross-sell hardware including its QFX switches. While TBR believes Juniper’s emphasis on open networking is benefitting its SDN controller business, white-box vendors are limiting Juniper’s share in key accounts, including Verizon, threatening its adjacent Routing business, said Michael Soper, analyst at TBR.

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