What does Juniper need to do to turn its fortunes around?
Despite beating Wall Street estimates with last week's Q3 results, Juniper (NASDAQ: JNPR) indicated Q4 revenue would be flat to slightly up from Q4 2011 and earnings would be down 20% to 30%, citing "challenging" market conditions marked by softness in the Americas.
The company is also in the midst of a restructuring that's seen four top executives depart, 500 employees laid off, consolidation in some business units and an effort to streamline product lines and R&D investments -- like the decision to kill its own application delivery controllers and recommend Riverbed's. This operational reboot is the result of product misfires, like disappointing sales in data center switching and security, and the slow ramp in new service provider routing gear.
LOOKING FOR A BUYER? Juniper may be for sale, but not to EMC
So here are five things Juniper needs to do in order to run its fortunes around and spark sustainable growth:
" Execute better across the board -- The hallmarks of a struggling company are all there, as mentioned above, from the top executives departing to the layoffs to the overlapping products. What's more, reports have surfaced that Juniper may be looking for a buyer (though EMC has quashed rumors it is looking to buy Juniper). Said Technology Business Research senior analyst Scott Denehy: "Despite the growth quarter, Juniper's long term prospects remain uncertain. Revenue growth for 4Q12 is estimated to be flat, and the company's financial performance will continue to be tied very closely to service provider spending patterns, particularly in the IP edge/core network as Juniper has yet to make any meaningful progress in the 4G Evolved Packet Core (EPC). While Juniper did announce that its solution for the EPC, MobileNext, is running production traffic with one customer, the company may be too far behind to compete effectively and have its solution contribute significantly to its long term growth."
Juniper has an execution problem. The company needs to improve engagement in all strategic areas. That begins with ...
" Revamping and improving marketing -- Clearly, Juniper's "The New Network is Here" message is not resonating with customers. Was it a case of marketing getting out way ahead of the product development and sales cycles? One insider believes that to be the case with the QFabric data center switching portfolio, which with its "3-2-1" marketing slogan sought to flatten data center networks from three to one tier: "Juniper cannot demonstrate that this model provides any benefit over (two-tier spine-and-leaf). So why would anyone buy it. 3-2-1 is just a marketing story." Then again, the market's pretty tough, according to CEO Kevin Johnson: "All of our major financial metrics were in line or ahead of our guided ranges in what continues to be a challenging environment. We're making good progress toward the objective we laid out at the analyst meeting to exit 2013 with an annualized run rate of $600 million in new product revenue. QFabric, PTX and T4000 each posted good revenue in the third quarter."
" Speaking of QFabric, another way for Juniper to turn things around would be to sell more of the data center switches. With heavy promotion but light sales, QFabric has been a disappointment, despite proclamations to the contrary from Juniper officials. In the same two-year timeframe that Juniper gathered 200 QFabric customers, Brocade landed 700 for its competing VDX fabric switches. The majority of QFabric customers have only the top-of-rack "node" switch deployed and Juniper waves off any attempt to determine the number of full QFabric node/interconnect implementations. CEO Johnson, though, says Q3 saw more "activity" in QFabric interconnects and directors than in nodes, which dominated previous quarters. Could the slow uptick be due to QFabric's proprietary nature? Or its complexity? Says longtime Juniper watcher Nikos Theodosopoulos, founder of consultancy NT Advisors LLC, in his blog: "There ... continues to be doubt on how successful the Q-Fabric product will be given its lack of significant revenue traction in the past few quarters, increasing competition in this segment of the market and the potential overhang that the open standards Software Defined Networking (SDN) architecture poses to the originally closed Q-Fabric offering. Juniper mentioned on their call that SDN is a key area of focus for the company, and it is likely the company will focus its efforts in the future to make the Q-Fabric more open and less reliant on the originally planned closed Juniper Q-Fabric controller."
" Which leads to another goal for Juniper in its effort to reignite growth: articulate a comprehensive and compelling SDN strategy. Juniper is the only major (or minor, for that matter) switching vendor that has not been vocally proactive in detailing its SDN strategy. Dribs and drabs have leaked out at trade shows in Japan and financial analyst conferences; but Juniper has not proactively announced and marketed to as wide an audience as possible a comprehensive strategy for harnessing SDN technologies across its key markets or domains. Network World did get wind of a plan to implement it in data centers; and this week during a Q3 conference call, Juniper said it plans to put OpenFlow 1.3 on its MX routers, and EX and QFabric switches next year. Also, Juniper has said that its QFabric switches and Junos software strategy embrace the programmable "principles" of SDN. But where's the actual strategy? What's next after the data center, and why? Where's the differentiation from Cisco ONE, or Brocade's SDN plan, or HP's, or Arista's SDCN? How will Juniper mix and match the QFabric controller with the many others it plans to support on the market, including the open source one it says it wants to champion as a de facto standard? Speculation has it that Juniper's product challenges, predominantly in QFabric, have postponed its SDN story -- or that it hasn't come up with one yet. Says CEO Johnson in the Q3 conference call: "We initially demonstrated OpenFlow on the MX in 2011, and this year we extended that to the EX. We will have a productized version of OpenFlow 1.3 on the MX, EX and QFabric next year so that our data center solutions can inter-operate with these many SDN controllers that are being built. We are actively engaging with several customers on the use cases where we think SDN can deliver the most value. We have a solution that is architected with SDN principles in QFabric, running in many customers' data centers today. We continue to gain traction with customers as we build out our feature sets. We are also building SDN APIs including OpenFlow into our systems, and as we do this throughout our product road map, we are continuing to evolve the portfolio. We think we're making pretty good progress."
" Once Juniper has a better grip on SDNs and its impact on data centers, and its switching and security products, it might be able to better engage with enterprises. Enterprise results in Q3 were mixed: The business saw "good" quarter-over-quarter growth in Europe and Asia offset by softness in the Americas. Enterprise revenue was up 5% sequentially and down 2% year-over-year. Switching revenue was up solidly both sequentially and year-over-year, and Juniper claims its EX LAN switches are taking share from competitors. QFabric also saw some new customer wins in Germany and China. Johnson reports "good progress" in rebuilding momentum in security. Juniper's security portfolio grew in low double digit percentages quarter-on-quarter but was down 7% year-over-year. "We saw gains across most of our product families, lending to our confidence that our security business is beginning to stabilize," Johnson said during the Q3 earnings call. There's still a lot of work to be done, however, says Bob Muglia, executive vice president of Juniper's Software Systems Division: "We are in a position of really driving forward and re-engaging in the Enterprise space. We've had some areas there where we've not been as strong as we like to be, particularly around things like manageability. And we have a very strong program to bring out a new product set to dramatically improve our manageability in the Security Design product. We have a very significant release of that coming out later this quarter as well as incremental updates of that in the first half of next year, where we expect to be very well positioned.
"The other thing I'll say overall is about our engagement with Enterprise is that we are telling and talking to them about an end-to-end integrated security strategy which they find very, very important, and that is enabling us to have a different level of engagement with these Enterprise customers. That does not translate into revenue immediately, but it does provide a good long-term potential."
Jim Duffy has been covering technology for over 25 years, 21 at Network World. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy.
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