"The bets we have made on technology are going to pay off; they start to pay off this year," asserted Rami Rahim, chief executive for networker Juniper Networks (JNPR - Get Report) , in an interview on Friday morning.
Juniper reported first-quarter results on Thursday after the close that were slightly better than expected, but still showed pressure on revenue from slowdowns in its two biggest markets -- cloud computing operators and telecom service providers.
Juniper stock was down 2.3% to $27.47 on Friday afternoon and are up about 1.8% this year.
Rahim told TheStreet that the company's decision to build out its own custom fiber-optic transceivers via its acquisition of photonics startup Aurrion in 2016 will lead to better economics, as cloud operators transition to networks of 400 billion bits per second, so-called 400G.
Juniper's main business in the cloud is connecting the data centers of Google and other cloud giants. "They are crushing it," Rahim said, by which he could have been referring to Alphabet's (GOOGL - Get Report) Google Cloud Platform, Amazon's (AMZN - Get Report) Web Services or Microsoft's (MSFT - Get Report) Azure. "Just look at the results," Rahim said.
But the timing of that 400G transition is vague at this point, with the cloud operators currently running their networks more "hot," as he put it, by stuffing more bits into the same infrastructure they've already bought, rather than buying new equipment. That slows sales of core routing equipment for Juniper. Company revenue declined 7.5% in the quarter, to $1 billion, just slightly ahead of consensus for $983 million.
Rahim insisted the 400G cycle will happen, regardless of any current uncertainty. "As long as their businesses continue to do well, they will need to invest in their networks; otherwise, their user experience suffers," Rahim observed. "You can debate the timing of cycles, but not the need for them to continue to invest."
When I asked Rahim about the uncertainty of 5G cellular's arrival, another massive shift like that to 400G, he said "I totally hear you," and offered that his company's forecast for 5G has always been "conservative."
Still, Rahim maintained that things get better for the company starting this quarter. "We do have visibility into timing of deployments across customer segments to see sequential improvement from here, and a return to year-over-year growth in the fourth-quarter time frame," said Rahim. He notes the company "saw some improved momentum exiting" last quarter.
Still, he conceded that telecom "service provider for us will remain under pressure for us for this year and even beyond that."
Juniper's ability to return to growing revenue in a sluggish market requires the company to make progress in the data center in the cloud, where Arista Networks (ANET - Get Report) and Cisco Systems (CSCO - Get Report) dominate. Rahim believes the technical bets, again, will pay off as "we are introducing some really innovative new product into the market that straddles software, silicon, systems and optics." According to Rahim, that gives Juniper "a much more potent tool set to choose from across routing and switching to be even more competitive."
Amidst all of this, the company has been restructuring its sales force, to, as Rahim says, "invest in a more native, front-line sales force of reps that can take the new product we are introducing to more and more customers." Rahim contends that the "big challenges are behind us" in that regard.
There will need to be more spending on acquisitions, he acknowledges, noting the purchase of startup Mist Systems this month, for $405 million, the company's biggest deal since its purchase of NetScreen Technologies in 2004. Mist makes tools that use machine learning to automate many steps of the network management function, especially for things such as wireless access points in corporate local-area networks.
"There is a lot we are executing on organically that I am optimistic about, but when we come across a compelling new tech [company] that can accelerate what we're doing, we will continue to do that," he said.
Mist is "off to a really solid start," said Rahim, adding that "it's opening doors for us." He said revenue from Mist will start to be material "later this year and next year," thought the immediate impact is to dilute the company's earnings this year.
At this point, it's a waiting game. Rahim's bets may indeed result in the return to growth in the fourth quarter that he promises. In the meantime, the uncertainty of 400G and 5G dominate investor sentiment more than the company's new products.
Juniper's stock has hovered just above the market over the last twelve months, rising 14.6% compared to an 11% rise in the S&P 500. If the markets for 400G and for 5G don't cooperate, however, there won't be much to celebrate at the end of this year.