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Will Juniper Raise Investor Hopes in 2014?
Posted by: Eshna Basu (IP Logged)
Date: January 16, 2014 10:36AM

Juniper (JNPR), the California-based networking giant is preparing to release its fourth-quarter earnings next week. The company is quite positive about its upcoming earnings release given the amount of effort it is putting in the budding data center space. Now let’s take a look at factors that can help Juniper to meet its expectations and keep investors happy.

SDN Technology to Drive Juniper

Juniper is increasingly becoming active in the "software defined networking" (SDN) field to make its presence felt in the booming data center space, where it is still a small player.

The technology, which is in a very nascent stage, reduces dependency on hardware and helps the administrators to manage networking operations through software that will work via a "controller." The technology helps in making data center operations much simpler.

The networking giant’s SDN exposure got solidified with the acquisition of Contrail Systems, a networking equipment providing start-up, for $176.0 million cash in December 2012. Eventually, Juniper introduced its SDN solution "Contrail" in September 2013. The software solution is designed to create a virtual networking platform that can be interconnected with the existing private/public/hybrid cloud environment. With Contrail, it will be easy to modify the physical data center infrastructure to an extremely flexible cloud infrastructure thereby reducing cost of ownership and boosting return on investments for a business.

Juniper is optimistic about the wide acceptance of the SDN technology. Hence, it is working closely with technology partners such as IBM (IBM), Check Point (CHKP), Red Hat (RHT) and Riverbed (RVBD) to make SDN deployments easy and fast.

The past few months have been pretty rewarding for Juniper after it offered its Contrail software solution to customers such as Cyberport, ISPrime, Jaguar Network and SunGuard Availability Services.

Apart from customer wins, Juniper will also have an edge over its fierce competitor Cisco (CSCO). The market leader’s SDN offering, Application Centric Infrastructure failed to match expectations. The most notable drawback of Cisco SDN technology, compared to that of Juniper’s, is that it is non-interoperable, even with the company’s existing setup.

According to research firm Gartner, SDN could emerge as a key technology driver in another five years. Hence, more players are coming into the field with their SDN solutions. This suggests that competition could intensify in the near future and restrict Juniper’s growth prospects to some extent. However, the company has a bigger plan to support its growth.

WANDL Acquisition to Boost Service Provider Revenue

Juniper has supplemented its growth through a number of acquisitions over the years. It recently bought WANDL, a software solutions provider, in December 2013 for approximately $60 million. WANDL’s capabilities will allow Juniper to offer advanced multi-layer networking solutions to its service provider customers.

The service provider market contributed 66.5% of its third-quarter 2013 total revenue, up from 63.1% recorded in the year-ago level. In its third-quarter earnings call, Juniper projected strong demand growth from the Service Provider end market. This WANDL acquisition could provide added support to help Juniper surpass its expectations.

IT Spending – A Big Factor

The most critical factor for any tech company's success is its spending on information technology. According to Gartner, spending for 2014 would touch $3.8 trillion, registering a year-over-year growth of 3.1%. Though the growth rate seems encouraging after witnessing flat spending in 2013, it is lower than Gartner’s previous forecast of 3.6%. Lowered expectations from data center and telecom services spending have pulled down the overall rate of IT spending.

Final Thoughts

The service provider market is Juniper’s forte and it secures larger share of revenues from the market. Adding further technological improvements in the field would push the market share upward. Though competition is expected to increase, Juniper’s SDN strategy seems to be going fine with continuous customer wins and new product developments. With these two trump cards in its pocket, Juniper is expected to post a good quarter ahead.

Stocks Discussed: JNPR, IBM, CHKP, RHT, RVBD, CSCO,
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