Juniper CEO sees IT spending down 15%

SAN MATEO, CA. -- Overall IT spending is down 10% to 15% from 2008, according to the CEO of Juniper Networks.

But due to market uncertainty, Kevin Johnson would not speculate on when spending might pick up again. Some analysts believe it may see an uptick in the second half of this year.

"I'm not going to comment," Johnson said when asked about a rebound in IT spending, which he said closely tracks the U.S. gross domestic product. "We're going to be agile quarter to quarter."

This lack of clarity on spending and the overall macroeconomic environment prompted Juniper to forecast revenue of $800 million to $830 million for the first quarter, which is flat to down 3% from a year ago.

Johnson did say, though, that current trends in enterprise networking play to Juniper's strengths. Customer requirements for "centralized" computing architectures, in which resources are physically housed in data centers and dispersed to remote locations through cloud computing and virtualization, demand the "pure play high performance networking" that Juniper espouses.

With that, Johnson confirmed that Juniper is developing a unified or converged data center switching fabric in which storage protocols such as FibreChannel are tunneled through Ethernet. Juniper is a backer of the Converged Enhanced Ethernet specifications supported by numerous vendors, and recently unveiled a hybrid cloud strategy with IBM.

"We do have a project around a data center fabric" that's supported by partnerships with server and storage vendors, Johnson said, adding that it will be detailed during Juniper's analyst conference here this week. Some analysts believe it will be more than a year before a product emerges from this effort.

"Juniper guided 2009 R&D up 15% over 2008 without providing a revenue range for the year. We believe the bulk of the increase is tied to ongoing enterprise efforts, especially on a new data center switch combining storage and Ethernet protocols

for Converged Enhanced Ethernet, with the product likely released in 2H10," wrote UBS analyst Nikos Theodosopoulos in a bulletin previewing this week's analyst conference.

The data center initiatives are part of an attempt by Juniper to further hone its enterprise strategy as it seeks to deepen its penetration into that market. The company is winning some enterprise converts – 30% to 40% of its EX LAN switch base are first time Juniper customers, Johnson says – and it has tallied $33 million in EX switch revenue since unveiling the products a year ago.

And sales to the enterprise market now accounts for 31% of Juniper's revenue.

Still, "our enterprise side is not as surgically focused as we need it to be," Johnson says. He says the company must maintain its concentration on high performance networking infrastructure while relying on partnerships for applications – such as unified communications, visual conferencing and others – that it supports.

"Customers want choice and flexibility," Johnson says. "IT deserves to be in control of their destiny."

And Juniper will continue to rely predominantly on organic R&D to build that infrastructure, even as financially challenged competitors such as Nortel are selling off assets in order to remain in some facets of the game.

Johnson all but ruled out any interest Juniper might have in acquiring Nortel assets.

"We have a number of Nortel channel partners signed up," he says. "But we want to preserve the strength of our balance sheet. We don't see [Nortel intellectual property] as something that attracts us at this time."

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