Juniper Networks Inc. (JNPR), the No. 2 maker of computer-networking equipment, fell after reporting a first-quarter profit margin that was less than the company had forecast.
Juniper yesterday reported a gross margin of 62.6 percent for the quarter -- three months after projecting a 63 percent to 64 percent margin -- citing price competition and a glut of parts purchased for new products. Low router sales also depressed margins, said Brian Marshall, an analyst at ISI Group.
“If Juniper could have posted gross margins within the 63-64 percent gross-margin guidance range, the quarter would have been a ‘clean’ beat and the stock would be up about 15 percent today,” said Marshall, who recommends buying the shares and has a $30 price target, in a research report today.
Margins can “rise quickly” with the introduction of Juniper’s new T4000 router, which is the most profitable in the company’s product portfolio, he said.
“Many people are asking if it is ‘time to throw in the towel?’” Marshall said. “We do not think so.”
Juniper’s fortunes are closely tied to spending by telecommunications service providers, which supply more than 60 percent of the company’s revenue. Demand for switches and routers from cable companies and Internet businesses is helping Juniper bounce back from the market-share losses and order delays that battered the company last year.
Revenue Beat Estimates
First-quarter revenue was $1.03 billion and profit excluding some items was 16 cents a share, the Sunnyvale, California-based company said in a statement yesterday. That compared with analysts’ average projections for sales of $977.1 million and profit of 13 cents, according to data compiled by Bloomberg.
First-quarter net income fell to $16.3 million, or 3 cents a share, from $129.8 million, or 24 cents, a year earlier, the company said.
For the current period, Juniper forecast revenue of $1.03 billion to $1.06 billion, compared with an average estimate of $1.05 billion, according to Bloomberg data. Profit excluding certain items will be 15 cents to 17 cents a share, Juniper said, less than the average 20-cent estimate.
Kevin Johnson, Juniper’s chief executive officer, said on a conference call with analysts yesterday that there are “still significant headwinds in Europe,” and that telecommunications- service providers there are “very cautious” about spending. Still, he said spending by large U.S. providers has picked up.
“It’s still a fairly dynamic environment,” he said.
Juniper controls about a fifth of the market for the routers and switches used by Internet providers, while Cisco Systems Inc. (CSCO), the biggest computer-networking equipment maker, has more than 50 percent, according to ACG Research. Cisco is dominant among large corporations, a market Juniper is trying to penetrate.
Juniper has been losing market share to Cisco, said Joanna Makris, an analyst at Mizuho Securities USA Inc. in New York, in an interview yesterday.
“By no means have they found solid footing,” Makris said in an interview. Cisco’s price cuts and newer products have helped lure business away from Juniper, she said.
Juniper’s router sales to telecommunications-service providers should be stronger in the second half of 2012 than the first half, said Nikos Theodosopoulos, an analyst at UBS Securities LLC.
“The overriding thing here is not so much loss of share -- there has been some -- but a bigger part is the target market isn’t growing as fast as it once was,” Theodosopoulos said.
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