Juniper sees customer spending delays

Juniper (JNPR) says its biggest customers are spending less than expected on routers, and the company is trimming its forecast for third quarter sales and profits. In a call with analysts and investors, Juniper CEO Shaygan Kheradpir cited “market dynamics including M&A activities” as a reason that certain projects have been delayed. He did not mention customers by name, but his audience understood him to mean that the proposed Comcast/Time Warner merger is impacting router demand at both companies.
Verizon Wireless and AT&T are also major Juniper customers, and the carriers may also be scaling back their spending with Juniper. AT&T reported yesterday that its second quarter capital spending was $6.0 billion, meaning that the carrier has spent well over half of its 2014 budget. AT&T has said repeatedly that it remains committed to roughly $21 billion in capital expenditures this year, and by the end of June it had spent $11.8 billion. Analyst Michael Genovese of MKM Partners, who covers Juniper, sees “front end loaded T and VZ spend” as reasons for Juniper’s lower Q3 projections.
Routing products make up two thirds of Juniper’s revenue, and sales have been on the rise during the past year. Second quarter routing revenue was $618 million, up 12% from the year-ago quarter.
Routing is one of the network functions that service providers hope to virtualize, or move to the cloud. This will be bad news for Juniper’s hardware sales, but the company is adapting with a number of software solutions. Juniper is one of the companies tapped by AT&T to help the operator develop a “user-defined network cloud.”
Juniper said its other product areas, switching and security, will be less impacted by customer spending changes. But these businesses have not been growing as quickly as its router business. In fact Juniper’s security business has been in decline, with Q2 revenue down 17% from Q1, and down 11% year-on-year.
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