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Juniper Forecast Falls Short of Estimates on Slow Sales

Juniper Networks Inc., the second-biggest maker of computer network equipment, forecast profit that missed analysts’ estimates as stiffer competition and spending cutbacks by telecommunications companies curb growth.

Fourth-quarter profit excluding some costs will be 19 cents to 22 cents a share, Juniper said today in a statement. That’s below the average estimate of 24 cents, according to data compiled by Bloomberg. Revenue will total $1.1 billion to $1.13 billion, Juniper said, less than the $1.15 billion estimate.

The forecast shows the effect on Juniper of increased competition from Cisco Systems Inc. and other networking equipment makers and slower spending by telecommunications carriers, which generate 60 percent of Juniper’s revenue. The company’s stock has fallen 14 percent this year.

“The environment, particularly on the carrier side, is very difficult,” John Slack, an analyst with Caris & Co. in San Francisco, said in an interview. “The North American carriers, AT&T and Verizon, they seem OK, but it’s unclear whether the strength there can offset the weakness that continues in Europe.”

Spending by telecommunications carriers in North America improved during the quarter while demand from the federal government and financial services companies was soft, Juniper Chief Executive Officer Kevin Johnson said in an interview.

Carrier Demand

“Clearly we’re seeing some strength in the U.S. and some softness in Europe, as are many others,” Johnson said. “Asia-Pacific seems relatively stable.”

Juniper stock rose 2.4 percent to $18 at 5:23 p.m. New York time in extended trading after the earnings report. The increase was probably a result of the shares having been “beaten to a pulp” and signs that Juniper is making improvements to its finances, according to Brian Marshall, an analyst with ISI Group in San Francisco.

“Same old -- Juniper beats and guides conservative, Juniper beats and guides conservative,” Marshall wrote in an e-mail. “This is because carriers can’t see five feet in front of them and nobody in communications equipment has any visibility.”

In the third quarter ended Sept. 30, Juniper reported profit before some costs of 22 cents a share, beating the average estimate of 17 cents.

Net income dropped 80 percent to $16.8 million, falling short of the average estimate of $39.7 million. Revenue rose 1.1 percent to $1.12 billion, topping the average estimate of $1.06 billion.

Executive Changes

Juniper announced that Stefan Dyckerhoff, executive vice president of the platform systems division, is leaving the company on Dec. 31 to become a venture capitalist at Sutter Hill Ventures. He will continue to work for Juniper as a staff consultant to the CEO. Dyckerhoff, 40, will be replaced on Nov. 1 by Rami Rahim, 41, who currently leads Juniper’s edge and aggregation routing division.

Juniper said last month that it was cutting 500 jobs, or 5 percent of its workforce. The reductions are part of a plan to lower costs by $150 million a year by 2013, said Ellen Roeckl, a company spokeswoman. The cuts were viewed favorably by some analysts and investors, helping push up the shares by 4 percent since the terminations became public. Those cuts are largely complete, Johnson said.

Cost cuts and forecasts for increased spending by telecommunications companies, particularly in the U.S., are two reasons why Juniper’s profit margins should improve, according to an Oct. 16 note by Ehud Gelblum, an analyst at Morgan Stanley in New York.

Network Upgrades

Juniper’s focus on telecommunications companies is at times a liability and others a benefit. Diminished demand from carriers has hurt growth in recent quarters. Still, the companies spend heavily when they do upgrade their networks.

Juniper’s second-quarter results, reported in July, showed that its newest products, particularly the T4000 router, were gaining traction. The company also has opportunities in the switching market, where Juniper is a small yet growing competitor, Gelblum wrote.

Some analysts see the outlook for spending by telecommunications companies as troubled. Verizon Communications Inc., the second-largest U.S. phone company, reported Oct. 18 that its capital spending for the first nine months of the year declined by more than $1 billion from the year-earlier period. Chief Financial Officer Fran Shammo said Verizon’s capital spending probably wouldn’t rise in 2013.

Warnings such as Verizon’s indicate that Juniper will probably remain under pressure in the near term, according to an Oct. 22 research note by Alkesh Shah, an analyst with Buckingham Research Group in New York.

Technology upgrades that would benefit Juniper may not happen until next year, Shah wrote.

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