Juniper's analyst day was constructive

In his research note to yours truly today, RBC Capital Markets Managing Director - Mark Sue states:

"Juniper's analyst day was constructive as the company highlighted specific plans to reduce costs during a period of reduced visibility. Despite the management's comments of increasing R&D spend this year by as much as 15%, the company articulated cuts in other areas such as S&M and G&A, and supply chain improvements, potentially helping save $100-$250M this year. For CY09E we are assuming total opex of $1.61B vs. $1.56B in CY08.

"Considering the current environment, it's highly unlikely that Juniper will be able grow revenues this year. If anything management's tone seems to indicate that demand has softened in recent weeks. For 1Q09, RBC remains street low at $797M, representing a sequential decline of 14% compared to the consensus of $808M. Certain carrier customers are now budgeting one quarter at a time and a higher level of fluctuations are expected in terms of order linearity. It is a very back end loaded quarter for most equipment vendors, Juniper no exception."

Sue added, "For 2009, we're estimating revenues to contract by -8%, implying limited incentive bonuses within Juniper, which will further drive cost savings. Gross margins may improve longer term from the current range of 65% to 67%. Juniper reiterated its share repurchase program, having already repurchased $116M to date with $670M remaining in the current plan. Juniper has $2.3B in cash or $4.37 per share and is generating healthy cash from operations.

"Juniper is expanding its product set and introduced its new SRX 3400 and 3600 and a high density switch, EX8216. Though no specific details were provided Juniper is also targeting cloud computing via a new fabric, "Stratus," along with an expanded partnership with IBM. Also, though still small, Juniper is making headway in the enterprise market as it works to reduce the cost of going to market in this segment."

Sue concluded, "So better opex visibility despite limited top line visibility is how we would characterize the outlook, implying no rush to own the name. Having said that, the product portfolio is strengthening, channel efforts are improving and cost discipline is permeating the organization."

Sincerely,

BradReese.Com Cisco Refurbished
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