Juniper Networks (JNPR)

Q2 2011 Earnings Call

July 26, 2011 5:00 pm ET

Executives

Robyn Denholm - Chief Financial Officer, Executive Vice President, Member of Concerns Committee and Member of Stock Committee

Kathleen Nemeth -

Kevin Johnson - Chief Executive Officer, Director, Member of Offering Committee and Member of Stock Committee

Analysts

Tal Liani - BofA Merrill Lynch

Brian Marshall - Gleacher & Company, Inc.

Mark Sue - RBC Capital Markets, LLC

Nikos Theodosopoulos - UBS Investment Bank

John Slack - Citigroup Inc

Brian White - Ticonderoga Securities LLC

Rod Hall - JP Morgan Chase & Co

Jayson Noland - Robert W. Baird & Co. Incorporated

George Notter - Jefferies & Company, Inc.

Jeffrey Kvaal - Barclays Capital

Ehud Gelblum - Morgan Stanley

Paul Silverstein - Crédit Suisse AG

Simon Leopold - Morgan Keegan & Company, Inc.

John Marchetti - Cowen and Company, LLC

Ittai Kidron - Oppenheimer & Co. Inc.

Simona Jankowski - Goldman Sachs Group Inc.

Presentation

Operator

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Greetings and welcome to the Juniper Networks Second Quarter 2011 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kathleen Nemeth, Vice President of Investor Relations for Juniper Networks. Thank you, Ms. Nemeth, you may now begin.

Kathleen Nemeth

Thank you, operator. Good afternoon and thank you everyone for joining us today. Here on the call today are Kevin Johnson, Chief Executive Officer; and Robyn Denholm, Chief Financial Officer.

Please remember when listening to today's call that statements made during this call concerning Juniper's business outlook, economic and market outlooks, future financial operating results and overall future prospects, are forward-looking statements that involve a number of risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including economic conditions generally or in the networking industry, changes in overall technology spending, the network capacity requirements of service providers, the timing of orders and shipments, manufacturing and supply chain constraints, variation in the mix of products sold, customer perception and acceptance of our products, litigation and other factors listed in our most recent report on Form 10-K filed with the SEC. All statements made during this call are made only as of today. Juniper undertakes no obligation to update the information in this conference call, in the event facts or circumstances subsequently change after the date of this call.

In discussing the financial results today, Robyn will first present results on a GAAP basis. And for purposes of today's discussion, we'll also review non-GAAP results. For important commentary on why the management team considers non-GAAP information a useful view of the company's financial results, please consult our 8-K filed with the SEC today. For the detailed reconciliation between GAAP and non-GAAP results, please see today's press release. In general, non-GAAP results exclude certain non-recurring charges, amortization of purchased intangibles, and other acquisition-related charges and expenses related to stock-based compensation.

On today's call, Robyn will also be providing forward-looking guidance. As a reminder, guidance is provided on a non-GAAP basis other than that with respect to revenue and share count. All guidance is forward-looking, and actual results may vary for the reasons I noted earlier. GAAP guidance measures are not available on a forward-looking basis due to the high variability and low visibility with respect to certain charges, which are excluded from the non-GAAP guidance estimates.

Please note that today's call is scheduled to last for one hour, and please limit your questions to one per firm. With that, I will now turn the call over to Kevin.

Kevin Johnson

Thank you, Kathleen, and welcome, everyone. For the first half of 2011, Juniper has delivered strong year-on-year growth of 18%, with solid year-on-year growth of 15% in the June quarter. And though it did fall short of our expectations, we delivered EPS at the low end of our guidance range.

There were many highlights in the quarter. Our service provider business grew 18% year-on-year. We saw solid growth in our routing and switching lineup. Our Enterprise business grew 9% sequentially, even with the decline in our SLT business.

We continue focus on the market trends at the mobile Internet and cloud computing. And during today's discussion, I'll comment on the current environment and why we are cautious about the second half, yet very optimistic about 2012 and beyond. I will also provide an update on key strategic innovation projects, design win momentum and an organizational announcement we made yesterday.

In early June, I spoke in an investor conference and commented on some macro signals that we were seeing in the market. With continued news coverage of topics, including the sovereign debt situation in Europe, rising unemployment in the U.S., softness in consumer confidence, the impact of the disaster in Japan and lower GDP expectations in many parts of the world, it is evident that people are trying to digest the macroeconomic signals and understand what impact they are having on the buying patterns of customers. These macro signals don't change the long-term demand equation for networking. The market trends of mobile Internet and cloud computing are strong and continue to drive demand. On a global basis, more people and businesses are connecting to the network and consuming more digital content. These market trends are consistent and our cohort to our growth agenda.

Having delivered 18% year-on-year growth through the first half, I want to highlight some factors that make us cautious about the second half, yet optimistic as we enter 2012. As we look to the second half, there are 4 reasons to be cautious. First, service provider CapEx guidance for the second half is lower than historical seasonal patterns. The historical seasonal pattern for Tier 1 U.S. service provider CapEx has been 43% to 45% invested in the first half and 55% to 57% invested in the second half. Tier 1 service providers in the U.S. have guided 2011 CapEx at approximately 50% of spending in the first half and 50% in the second half, with a forecasted year-on-year growth of approximately 1%. This is a change to historical pattern. We see similar trends with the top 15 service providers globally.

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