Juniper in Free Fall

A weak first-half forecast sends the stock plunging.
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Updated from Jan. 25

Juniper

(JNPR) - Get Report

plunged 19% Thursday after the networking company blindsided Wall Street with sour guidance for the first half of 2006.

Juniper gave investors a letdown soon after the close Wednesday, when it posted a rise in fourth-quarter profit but missed Wall Street's revenue target. But the news got much worse in a postclose conference call when the company guided its profit outlook lower for the first and second quarters, citing weak sales in Japan.

Worse yet, the company guided for its first sequential sales decline in four years. Calling for a 1% revenue decline in the current quarter from fourth-quarter levels, Juniper effectively called the end to the runaway success of the company's Internet gear.

"This implies that overall growth in the routing market is reaching a point where the market is not strong enough to overcome seasonal swings in spending," says JPMorgan Chase analyst Ehud Gelblum, who has a neutral rating on the stock.

On Thursday, Juniper plummeted $4.10 to $17.42.

The Sunnyvale, Calif., maker of communications networking gear earned $106 million, or 17 cents a share, for the quarter ended Dec. 31, up from the year-ago $66 million, or 11 cents a share. On a pro forma basis, excluding certain costs, earnings rose to 20 cents a share from 15 cents a year earlier, in line with the Thomson First Call analyst consensus estimate.

Revenue rose 34% from a year ago to $575 million, falling short of the $579 million analyst view.

Cash provided by operations rose to $197.5 million from $142.5 million a year ago. Capital expenditures and depreciation were $39.3 million and $15.4 million, respectively.

"I'm pleased to report another strong quarter and the completion of a year characterized by growth across multiple dimensions," said CEO Scott Kriens. "Juniper remains at the intersection of opportunity, where the increasing and strategic importance of today's network demands the integrated best-in-class solutions that the company was built to deliver. As we surpass annual revenues of $2 billion on the eve of our 10th anniversary we see a bright future, founded in the confidence our customers have placed in Juniper."

Later, though, Kriens took up a less optimistic tune, and investors took note.

Kriens said on the call that the company won't match Wall Street estimates for its first quarter ending in March, due in part to order softness in Japan. The company expects to make 19 cents a share on a pro forma basis excluding certain costs on revenue of $570 million or so. Analysts were looking for a 20-cent per-share profit on sales of $586 million.

That's not all: going by Kriens' comments, the second quarter will be just as bad. Looking ahead to the second quarter, Juniper expects to post adjusted earnings of about 19 cents a share on $585 million in sales. That forecast is well below the 22-cent pro forma profit on $616.8 million in revenue analysts expected.

The news comes just two weeks after Juniper

reshuffled its management ranks by replacing three executives with four, including a hard-charging manager from rival

Cisco

(CSCO) - Get Report

. Juniper says it has now realigned its businesses around two customer groups: enterprises and phone companies.