Juniper Declines After Forecast Disappoints: San Francisco Mover

Juniper Networks Inc. (JNPR), the No. 2 maker of networking equipment, fell after its first-quarter forecast missed estimates, a sign Internet providers are delaying network upgrades.

Juniper shares dropped 3 percent to $21.69 at the close in New York. The stock fell 45 percent last year.

Telecommunications-service providers, which account for more than 60 percent of Juniper’s revenue, are tightening their budgets. Juniper also is losing customers to its bigger rival, Cisco Systems Inc. (CSCO), which is enticing orders with price cuts, said Joanna Makris, an analyst at Mizuho Securities USA.

“The disappointment continues at Juniper,” Makris said in an interview. The New York-based analyst has a “neutral” rating on the stock.

While consumers have flocked to mobile devices like smartphones and tablets, network upgrades may lag behind because they can take years to plan and cost billions of dollars.

Profit before certain items will be 11 cents to 14 cents a share, the Sunnyvale, California-based company said yesterday in a statement. Sales will be $960 million to $990 million, Juniper said. Analysts, on average, had estimated 27 cents in profit and sales of $1.1 billion, according to a Bloomberg survey.

Shrinking Margins

Juniper controls 18 percent of the market for Internet providers’ routers and switches, the technologies that shuttle and steer data traffic around networks, according to telecommunications consulting firm ACG Research. Cisco, the industry leader, commands more than 50 percent.

Competition has forced Juniper to cut costs, eroding its profit margins, Makris said.

Juniper said first-quarter gross margin, or the percentage of sales left after subtracting production costs, will be 63 percent to 64 percent, excluding certain items. It was 67.9 percent on that basis in the first quarter of 2011.

“The guidance is disappointing,” Makris said. “The gross margin guidance is very disconcerting.”

Juniper may have ceded some market share as it focuses on building new products, Chief Executive Officer Kevin Johnson said, calling it a “short-term” issue. He said on a conference call that some financial-services firms delayed orders in the fourth quarter, while spending by the U.S. federal government was “very strong.”

Catching Up

The timing of the industry’s upgrades doesn’t always work in Juniper’s favor, said Ray Mota, managing partner at ACG in Gilbert, Arizona.

“Sometimes it takes spending by the carriers and the enterprise some time to catch up,” Mota said. “It’s a little bit slower.”

AT&T Inc., which makes up more than 6 percent of Juniper’s revenue, according to data compiled by Bloomberg, said yesterday that it will spend about $20 billion on capital expenditures this year, little changed from 2011.

Juniper said earlier this month that weaker spending by U.S. Internet providers would reduce fourth-quarter results.

Juniper had net income of $96.2 million, or 18 cents a share, last quarter, compared with $190.2 million, or 35 cents, a year earlier. Sales fell to $1.12 billion, the company said. Excluding certain items, profit was 28 cents. Analysts on average estimated that Juniper would have profit of 27 cents and sales of $1.12 billion.

To contact the reporter on this story: Jordan Robertson in San Francisco at jrobertson40@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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