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Juniper Needs Better Diversification to Create Long-Term Value

NEW YORK (TheStreet) – Shares of enterprise company Juniper Networks (JNPR - Get Report) are under attack.

Trading around $23, shares are up 2% for the year to date, 6% for the past 52 weeks but down 15% over the past five years.

There's a reason why this company has grossly underperformed the likes of Cisco (CSCO) and Ciena (CIEN) within the enterprise: Juniper is not as well diversified, which was a glaring issue in its financial results reported Tuesday.

Investors who place the wrong bet are now hoping for a quick bounce. But it's not going to happen.

On their own, Juniper's numbers weren't that bad. Revenue grew 7% year over year to $1.23 billion. The company delivered an impressive 38% growth in adjusted earnings, delivering 40 cents per share. That was good enough for a beat of 2 cents a share. But that's where the good news ended. The market is looking forward, not backward.

To that end, Juniper's outlook, which missed both revenue and earnings estimates, spooked investors.

For the October quarter, management guided for revenue in the range of $1.15 billion to $1.20 billion. The high end of that range is still roughly 5% short of what analysts expected. This means that earnings will be under pressure. Analysts were looking for 44 cents per share. Management guided 9% miss on the high end, or 40 cents per share.

Emails sent to management requesting additional color on the guidance were not immediately returned.

But the way I see it, this lack of confidence suggests that Juniper won't win any big deals in the quarters ahead. The problem has to do with the company's over-reliance on carrier spending. Like both Cisco and Ciena, Juniper needs the likes of AT&T (T) and Verizon (VZ) to spend on infrastructure and network builds.

But unlike Cisco and Ciena, Juniper doesn't have reliable alternative sources of revenue. That more than two-thirds of its revenue comes from carriers presents considerable risk.

Consider, AT&T is not going to overspend on its infrastructure until it knows that its proposed offer of $48.5 billion for DirecTV (DTV) is in the bag. It's just good business.

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