California-based networking company Juniper Networks (NYSE:JNPR) posted solid fourth quarter earnings last week. The overwhelming performance in the last quarter was largely driven by the improved spending behavior of the telecom sector. The network equipment maker seems happy with its growing customer base and good demand for its products launched last year. The company has also noticed demand for its software defined networking (SDN) solutions during the quarter.
The Quarter in Brief
Juniper’s sales went up 12% to $1.27 billion over last year’s fourth quarter. The sales gain is primarily attributable to its strengthening two end-markets, namely Service Provider and Enterprise. The revenue was well above the company’s guidance range of $1.20 billion to $1.23 billion.
Service Provider end market, which includes wireline, wireless, cable operators and Internet content and application provider, registered a growth of 11.8% mainly due to higher demand for new product designs. The demand growth was mostly noticed from the cable operators and web-service content providers. Geographically, good support came from Americas, Europe, Middle East & Africa (EMEA) and Asia-Pacific regions.
Enterprise end-market, which serves large businesses, government and institutions, registered a growth of 11.3% aided by strength from all geographical regions, and financial and federal sectors.
Product routers and switching both performed well by posting double-digit year-over-year growth (router up 17.4% and switching up 36.3%). Healthy bookings for MX and PTX routers as well as EX and QFabric switching drove the overall product revenue growth. But, security solutions remained a concern as it declined 6.5%. The improved trend was driven by higher demand for Juniper’s high-end SRX series service gateway.
Although operating expenses escalated due to higher commission-based costs and legal expenses, non-GAAP operating margin improved 370 basis points year over year to 21.9%, reflecting solid top line growth.
Face Off with Its Competitor
Juniper’s SDN strategy is on track and that could be a key driver going forward. Also, with growing demand for its SDN solutions, Juniper can get a competitive edge over archrival Cisco Systems (NASDAQ:CSCO), the leader in the network equipment space.
Cisco is going to report its second-quarter 2014 earnings in mid-February. Analysts, though positive on the company’s prospects, are concerned about slowing revenue growth. Sales growth is suffering from tight spending in the emerging markets, and Cisco is also missing a significant catalyst in the matured U.S. and European markets.
What’s in Store for the Upcoming Quarter?
Juniper forecasts its revenue to be in the range of $1.12 billion to $1.16 billion in the first quarter of 2014, as conventionally its first and third quarters are a bit slow. Operating expenses are estimated to remain under control, which would aid the operating margins. The network equipment maker plans to concentrate on its R&D and bring further innovation in its offerings. The company expects to share its "Integrated Operating Plan" in a few weeks time. We can expect some good cost optimization plans that will help increase margins.
On the whole, Juniper expects healthy demand trends in the networking industry this year. Most of the growth is expected tto come from the U.S. telecom sector as competition among wireless carriers is intensifying. The rising popularity of smart phones and tablets is increasing the data usage which is leading to high web traffic. Therefore, wireless carriers are in a rush to upgrade their networks to give better speed and band-width to their customers. This requires high-performance networking equipment which would create demand for Juniper’s offerings. As Juniper fetches more than 60.0% of its revenue from the service provider end-market, it could become one of the key beneficiaries of the increasing demand.