Juniper Networks Inc. (JNPR) posted strong second quarter 2010 results, with earnings per share of 22 cents, below the Zacks Consensus Estimate of 24 cents.
Revenue
Juniper Networks’ revenue for the second quarter rose 24.0% year-over-year to $978.3 million. The company generated 79.1% of its quarterly revenue from product sales, with the remaining 20.9% coming from service revenues. The company witnessed growth in both product and services revenue, wherein product revenue increased 27.5% while service revenue improved 13.9% compared to the year-ago quarter.
Revenue Segments
Juniper Networks’ Infrastructure Product revenue was up 25.6% year over year, while Infrastructure Service revenue rose 14.1% in the reported quarter. However, Service Layer Technologies Product revenue was up 34.1% and Service Layer Technologies Service revenue was up 13.4% in the reported quarter. The company derived 50.5% of its quarterly revenues from the Americas. Out of the rest, 29.6% was generated from Europe, Middle East and Africa, while 19.8% came from Asia-Pacific.
Operating Results
Juniper Networks’ gross margin on a GAAP basis increased to 67.5% in the second quarter, up from 64.4% reported in the year-ago quarter. Including amortization of intangibles and stock compensation non-GAAP basis, the gross margin for the quarter was 67.6%, up from 64.4% reported in the year-ago quarter. Product gross margins were 70.1%, up from 65.8% in the year-ago quarter. This improvement was the result of a better product mix. Service gross margin was 57.6%, down from 59.6% reported in the year-ago quarter.
Operating margin on a GAAP basis was 18.9%, up from 12.2% reported in the year-ago quarter, while non-GAAP operating margin was 23.9%, up from 18.1% reported in the year-ago quarter. Operating expenses increased 15.6% on a year-over-year basis, but revenue increase of 24.0% surpassed the increase in expense, which resulted in an expansion of the operating margin to 18.9% from 12.2% reported in the year-ago quarter. The company increased investment in R&D and enhanced the quality of its product portfolio. Juniper also increased in Sales, General and Administrative expenses.
Net income on GAAP basis was $130.5 million, compared to $14.8 million reported in the year-ago quarter. Excluding special items — such as restructuring charges, amortization, valuation allowance, non-recurring income tax adjustments, etc. — non–GAAP net income for the quarter was $163.9 million, up from $103.8 million reported in the year-ago quarter. Net income per share on a non-GAAP basis was $0.30, up from $0.19 reported in the year-ago quarter. Excluding stock-based compensation, adjusted net income per share was $0.22.
Balance Sheet & Cash Flow
Juniper Networks exited the second quarter with $2.22 billion in cash and short-term investments, compared to $2.31 billion of cash and short-term investments in the previous quarter. The company generated net cash from operations of $221.3 million in the reported quarter, compared to net cash provided by operations of $88.5 million in the year-ago quarter. Capital expenditures during the quarter were $45.4 million.
Our Recommendation
The company delivered decent second quarter numbers, and reported a substantial increase in revenue. The company is constantly growing through strategic alliances, new acquisitions and also launching new products. With companies substantially increasing their IT spending budgets, the demand for networking products will continue to grow through the rest of 2010.
Juniper operates in a highly competitive environment, where stiff competition from industry stalwarts, such as Cisco Systems (CSCO) and Hewlett-Packard Company (HPQ) ensures continued and significant spending on innovation. This along with the European crisis are likely to weigh on the shares.
We therefore maintain our Neutral rating on Juniper, although the near-term European currency risk has raised concerns, and this is reflected in the Zacks #4 Rank (short-term Sell) on Juniper shares.
Read the full analyst report on “JNPR”
Read the full analyst report on “CSCO”
Read the full analyst report on “HPQ”
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