Juniper Networks Inc. (JNPR) posted fourth quarter 2010 adjusted earnings per share of 42 cents, which surpassed the Zacks Consensus Estimate of 31 cents.
Revenues
Juniper Networks' revenues leaped 26.4% year over year to $1.19 billion in the fourth quarter, beating the Zacks Consensus Estimate of $1.12 billion. The revenue outperformance can be attributed to growing demand for mobile Internet and cloud computing.
The company generated 80.9% of its consolidated quarterly revenue from Product sales, with the remaining 19.1% coming from Service. Juniper witnessed growth in both Product and Services revenues, which grew 30.2% and 12.5%, respectively, from the year-ago quarter.
Market-wise, Service Provider revenues were $783.8 million, up 22.6% year over year and Enterprise revenues $406.1 million, up 34.4% .
Revenue by Segment
On a year-over-year basis, revenues increased 34.6% for Infrastructure Products, 12.9% for Infrastructure Services, 16.1% for Service Layer Technologies Products and 11.8% for Service Layer Technologies Services. Total Infrastructure revenue surged 30.5% and total Service Layer Technologies revenue increased 14.9% from the year-ago quarter.
The company generated 48.8% of its quarterly revenues from the Americas. Out of the remaining, 30.2% was generated in Europe, Middle East and Africa, while 21.0% came from the Asia-Pacific. On a year-over-year basis, revenues grew 12.8% in the Americas, 41.2% in Europe and 45.3% in the Asia-Pacific.
Operating Results
On a GAAP basis, Juniper Networks' gross margin dropped to 66.6% in the fourth quarter from 67.1% in the year-ago quarter. Excluding amortization of intangibles and stock compensation, non-GAAP gross margin in the quarter was 67.2%, down from 67.6% reported in the year-ago quarter.
On a non-GAAP basis, product gross margin was 56.0%, up from 53.8% in the year-ago quarter. The improvement was driven by better product mix. Service gross margin was 11.2%, down from 13.8% reported in the year-ago quarter.
Operating margin on a GAAP basis was 19.1%, up from 0.6% reported in the year-ago quarter. The uneven comparison was due to a huge litigation expense recorded in the year-ago quarter.
Excluding amortization of intangibles, stock compensation expenses, litigation expenses, restructuring expenses and acquisition-related expenses, the non-GAAP operating margin increased 10 basis points year-over-year to 24.5%. Non-GAAP operating expenses increased 25.1% on a year-over-year basis.
Net income on a GAAP basis was $190.2 million or 35 cents, compared to $22.9 million or 4 cents reported in the year-ago quarter. Excluding special items, non-GAAP net income in the quarter was $228.6 million or 42 cents, up from $173.7 million 32 cents reported in the year-ago quarter.
Balance Sheet & Cash Flow
Juniper Networks exited the fourth quarter with $2.29 billion in cash and short-term investments, compared to $2.10 billion in the previous quarter. Accounts receivables were $596.6 million. Total deferred revenue was $884.5 million.
The company generated $371.0 million in net cash from operations, compared to $131.4 million in the previous quarter. Capital expenditures during the quarter were $47.8 million versus $54.3 million in the previous quarter.
Guidance
Management expects customer demand to remain healthy going forward, which would subsequently drive further gains in the networking and cloud computing space. For this purpose, Juniper expects to launch new security, routing and switching products in fiscal 2011.
However, based on increased competition from Chinese networking companies, Juniper expects first quarter revenues in the range of $1.06–$1.11 billion.
Gross margin is expected to range between 66.0% and 68.0%. Operating expenses, as a percentage of total revenue is expected to be slightly higher sequentially, but approximately flat on a dollar basis. Operating margin is expected to be in the range of 21.5%–22.5%.
Juniper expects the tax rate to be 28.5%, which along with a flat share count is expected to fetch non-GAAP earnings per share of 30 cents to 33 cents. The non-GAAP EPS estimate includes the impact of recent acquisitions of approximately 2 cents per share.
Our Take
The company delivered decent fourth quarter numbers with both the top and bottom line surpassing the Zacks Consensus Estimates. However, competitive pressure forced Juniper to provide disappointing first quarter guidance.
Moreover, stiff competition from market leader Cisco Systems Inc. (CSCO) and upcoming networking company Hewlett-Packard Company (HPQ), as well as Juniper's European exposure are likely to weigh on the shares.
Currently, Juniper has a Zacks #3 Rank, implying a short-term Hold recommendation.
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