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Juniper earnings downed by a lack of cloud sales

The latest Juniper earnings report shows lower-than-expected sales to cloud providers will result in a revenue decline in the current quarter. The company had expected to return to growth.

Juniper Networks said it wouldn't meet its goal of returning to year-over-year revenue growth in the current quarter because of weak sales to major public cloud providers.

Juniper predicted revenue in the fourth quarter ending in December would reach $1.2 billion, which would amount to a decline from the same period a year ago. The company also reported this week revenue fell 6% in the third quarter ended in September to $1.18 billion, while net income minus one-time items decreased 10% to $191 million.

"I am disappointed in our performance in switching for Q3," Juniper CEO Rami Rahim told financial analysts during a conference call following the release of Juniper earnings. "I think we can and will do better."

Sales of switches, routers and software to cloud providers dropped 28% in the third quarter to $250 million. Contributing to the decrease were cloud customers who had previously purchased Juniper's MX routers switching to the lower price per port PTX routers, said Frank Marsala, an analyst at Gartner.

Also, "the challenges for Juniper remain competitors and slow spending by communications service providers," Marsala said. Competitors that have cut into Juniper's customer base include Arista and Nokia.

Rahim expected cloud sales to remain weak through the rest of the year but predicted improvement next year. "I do think 2019 will be a growth year for us in the cloud based on the visibility that we have," Rahim said during the Juniper earnings call.

I am disappointed in our performance in switching for Q3. I think we can and will do better.
Rami RahimCEO, Juniper

Cloud providers with massive data centers, such as Microsoft, Facebook, Amazon and Google, turn to network hardware suppliers for spine switches and core routers while using white box systems with an open source network operating system for top-of-rack switching, said Brad Casemore, an analyst at IDC.

"The situation is fluid, however, and hyperscalers continuously strive to reduce data center infrastructure costs, including the cost of data center networking -- both Capex and Opex," Casemore said.

Enterprise sales offset cloud slump

Juniper's weakness in sales to cloud providers was offset in part by an increase in revenue from enterprises. Sales of enterprise hardware and software rose 15% in the third quarter to $386 million.

Revenue listed in Juniper earnings from security products sold to enterprises and communication service providers rose 8% to $77 million.

Juniper rivals Cisco and Arista reported better performance in their most recent quarterly reports. In August, Cisco reported a 6% revenue increase in the quarter ended in July and forecasted a 5% to 7% rise in the current quarter. Arista said revenue in the quarter ended June 30 increased 10%.

The three networking suppliers compete in the data center and more recently in campus and multi-cloud networking. For cloud providers, the three companies have introduced 400 GbE switches and routers, which analysts expect to replace current 100 GbE hardware over the next several years.

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