On Thursday, internet router giant Juniper Networks (NASDAQ:JNPR, news, filings) reported preliminary Q4 earnings. As with all telecom equipment makers, the effects of the economic crisis are front and center because of draconian capex cutbacks. Internet traffic may be growing steadily, but carriers and service providers have a good deal of leeway in the timing of their purchases to meet such demand and believe me they are going to use it. Hence, I wasn’t the least bit surprised to see Juniper check in with revenues of $923.5M, beneath the street’s hopes and dreams expectations of $938.3M. Frankly, being within 2% is actually not bad, equipment maker revenues tend to bounce wildly in times like these, they’re lucky they got the first digit right.
Earnings per share of $0.32 were basically inline, with cost discipline and improved operating efficiency holding the line. That’s the way to survive a recession like this one as an equipment maker. Keep your head down, keep your costs in line, and wait patiently for growing traffic demands to force that capex to return. That day will come but do not, repeat, do not predict when that spending will return because you can’t win that game. They will first disbelieve your prediction, then punish you when it doesn’t happen – and if it does happen then you won’t get credit for it. So Juniper’s Q1 projections are appropriately morose, offering a nice low net of $800-830M.
I don’t think anyone with a brain sees Juniper at risk, being debt free, profitable, and sitting on $2B in cash. But the market insists on acting surprised when told things they already know. No doubt when Cisco Systems (NASDAQ:CSCO, news, filings) and Alcatel-Lucent (NYSE:ALU, news, filings) report they will be totally shocked again that cutbacks in carrier spending are mathematically linked to telecom equipment revenues.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!
Categories: Financials · Telecom Equipment
Join Our LinkedIn Group
Note R&D was projected to be UP 15% for 2009. That was a big surprise.
That did surprise the market I guess, but not me. Juniper realizes that solid R&D spending now will only improve their market position when the good times return.
Yes, but the real question what was insufficient about what they were doing before, or what are they doing with the additional spend?