Ace networking solutions vendor Juniper Networks Inc. (JNPR) announced that it expects the fourth quarter results to come below its prior expectations. The company expects to report its fourth quarter results on January 26, 2012 and estimates weaker-than-expected demand for routers from telecom service providers (with a particular weak spot in the U.S.) to hurt the quarterly results.
For the quarter, Juniper now expects revenue of $1.1 billion to $1.2 billion, down from the previous expectations of $1.16 billion to $1.22 billion. Non-GAAP operating margin is expected to be below the previous guidance of 21%-23%. The margin decline is the result of lower non-GAAP gross margins impacted by lower revenue. Non-GAAP earnings are expected in the 26-28 cents a share range, down from the previously expected range of 32-36 cents.
Nevertheless, the company positively commented that it remains committed to innovating high-performance networking while focusing on excellent management execution and cost reduction.
The lowered guidance was in line with management’s commentary provided during the third quarter conference call. In the last quarter, management noted that service providers continued their investments in infrastructure but were delaying the projects. Given the current macroeconomic volatility, management expects service providers to closely manage their fourth quarter capital expenditures.
We believe that this weak demand trend will be temporary. Instead, we are looking forward to assessing the impact of new product launches and design wins. During the third quarter, Juniper launched the new product suite – T4000 core router, QFX data center platform, PTX packet/optical solution, and MobileNext mobile routing platform.
Notwithstanding the prevailing macroeconomic environment, we think that areas like data center virtualization, cloud computing and mobile traffic packet/optical convergence will rise thanks to big data transfers. Hence, there will be a chance for the new products to find easy acceptance among customers.
Moreover, Juniper’s endeavor to revamp the distribution of its products in Asia (opening up a unit in Japan and signing a reseller agreement with a Korean telecom company) is encouraging. Through the improved distribution, the company will be able to dislodge big brands such as Cisco Systems Inc. (CSCO) and Hewlett-Packard Company (HPQ), who have entrenched operations there.
However, continuous R&D investment pressuring operating margin, European exposure and federal budget cuts could rationalize Juniper’s stable fundamentals.
Juniper has a Zacks #4 Rank, implying a short-term Sell rating.
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