Juniper might want to think twice about fiddling with its switching business, as one activist investor advises. Switching was a highlight in Juniper's fourth quarter, 2013, results, having jumped 36% from last year and 35% from last quarter to $199 million, based on strong demand for both the EX and QFabric lines.
Juniper handily beat Wall Street revenue and earnings estimates in the quarter, and guided to a Q1, 2014, in-line with expectations, prompting the stock to rise close to 6% in after hours and pre-market trading.
Investor Elliott Management, which holds a 6.2% stake in Juniper, recently proposed that Juniper take a long hard look at its switching business based on the underwhelming acceptance of its uber-hyped QFabric data center switching system. QFabric has some popular top-of-rack 'nodes,' but as a full-blown, single-tier fabric architecture, it's been coolly received in the market.
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Once again, Juniper would not discuss during its Q4 conference call whether the QFabric success during the quarter was due implementation of the full architecture or just robust sales of the top-of-rack nodes. Executive Vice President Rami Rahim did note though that the EX 4300 top-of-rack, the EX 9200 core and the software-defined networking tie-ins with VMware or Juniper's Contrail are resonating with enterprises and service providers alike.
Elliott is also calling for Juniper to cut costs and return more money to shareholders, a demand echoed this week by another activist investor, Jana Partners. Jana announced yesterday that it had taken a large stake in Juniper and believes the company could save $300 million a year by streamlining operations.
Juniper is percolating a plan to do just that. New CEO Shaygan Kheradpir said the company in a few weeks will unveil its Integrated Operating Plan, which seeks to tailor the company's strategy to focus on "innovation that matters"; introduce a more efficient cost structure; and return capital to shareholders via share repurchases and dividends.
Kheradpir says he was attracted to Juniper based on its "iconic" and "pioneering" product line and positioning in networking, and its potential for leadership in "High IQ" networking and as a "cloud builder."
But he also made it clear he won't stand pat or be complacent with the status quo.
"I'm here as an agent of change," Kheradpir said during the Q4 earnings call, "to lead Juniper through the changes required to reach its full potential."
Juniper's switching business may finally be realizing its full potential if Q4 is any indication. We'll see what befalls it when Kheradpir details the Integrated Operating Plan in three or four weeks.
Other highlights of Juniper's Q4 include a 17% hike in router product sales from last year and a 20% increase in bookings from Q3, based on strong demand for MX and PTX platforms. Security, typically a laggard for Juniper, increased 9% from Q3 but declined 16% for the full year.
Juniper's enterprise business also grew 11% from last year and 12% from Q3, while service provider grew 12% from last year and 5% from Q3. Over 50% of total revenue growth from service provider came from Web services, content and cable providers, while enterprise growth was driven by strength in the US.
In the quarter, Juniper cut 248 positions, or 2.5% of its workforce, in R&D and sales and marketing. Headcount now stands at 9,483.
UPDATE: Juniper's losing another Microsoft alum. Executive Vice President and Chief Customer Officer Gerri Elliott announced they she will retire later this year. She will work with CEO Kheradpir on a transition and then serve in the role of Executive Vice President and Strategic Advisor to the CEO for six months until her retirement.
Elliott joined Juniper in 2009 from Microsoft, where she had been Corporate Vice President of the Worldwide Public Sector organization, managing a staff of more than 2,000 in sales and marketing. She was also helped establish Microsoft's industry vertical sales sectors.
She follows fellow Microsoft alums Kevin Johnson, who retired as CEO at the end of 2013, and Bob Muglia, executive vice president of Juniper's Software Solutions Division, out the door as Juniper remakes its upper management team under Kheradpir.
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