Juniper’s Service-Driven Miss

Well, Juniper reported its numbers yesterday after the markets closed, and they booted their quarter and their guidance in a performance reminiscent of Cisco’s last quarterly call.  Nothing matched Street expectations, and the stock was down by 17% in the after-market.  Part of the issue may have been that the stock was actually up during the day, showing that the consensus view of the Street was positive.  The Street, writing yesterday, said “The company should continue to gain ground due to solid demand for its networking products- driven by growing network traffic.”

Earth to The Street; demand for routers is created by profitable carrier operation, and virtually all the major research firms have been saying that capex is now captive to monetization.  Juniper’s performance should not have come as a surprise; it didn’t to us.   Monetization means revenue, and revenue is driven by the higher layers of the network; services and wireless.  If you look at my most recen tsurvey data, which we’ve digested in detail in our Netwatcher journal in June, you see that Juniper’s challenge was simple; continued service-layer disconnect that created monetization disconnect.

CEO Kevin Johnson essentially acknowledged my point on the earnings call, noting that carriers were spending capex on the RAN.  Well, gosh, you can’t sell wireless services without radios, which is why RAN-level engagement is a higher-level engagement than pushing bit pipes.  Wireless is a key priority for operators in making more money, so Juniper is at risk by not having wireless components.  They could mitigate this problem only by focusing on the service layer.

The potential in Junos Space has never been realized.  Instead the company worked on developing operations tools built on Space, to play to a theme that seems to have arrived at Juniper with Kevin Johnson; Total Cost of Ownership.  The TCO push is one I hated from day one because it seems to admit that there’s nothing important about the network; it’s just a place where you minimize costs and hope for the best.  For a company that has prided itself—and rightfully—on engineering excellence, that seems not much short of surrendering your differentiation.

Ironically, Juniper just announced a new exec, Robert Muglia, formerly from Microsoft where he had broad experience with servers, developers, and the cloud.  Muglia will run the new Software Solutions Division.  Software, of course, is what the service layer has to be.  It’s what Space already is.  It’s what Juniper has needed to exploit since 2009 at least, to get a position astride at least one of the three key carrier monetization priorities (content, mobile/behavioral, and the cloud).  So this is good, right?  Maybe.  The problem is that in one interview, Muglia is quoted as saying that he’s excited about the job, which will involve the software that runs on routers to improve management.  Oh, no, this sounds like the old, tired, Juniper theme of Total Cost of Ownership!

Monetization isn’t about cost reduction, guys.  It’s about driving revenue up.  Even if the whole TCO thing was provable (which it’s not) the operators are first of all looking at the top line and second convinced that the best way to cut TCO is to buy from Huawei.  Their strategic influence, by the way, was UP by 14 points in the service layer (more than double), and up by five points in the IP layer (33%).  They were up in both in the last survey, while Juniper was down in both.

So now it’s Earth to Muglia time:  If your strategy for Juniper is to use software to manage routers better, then you’ve made a tragic decision picking Juniper over the other choices you talked about in your interviews.  And for Juniper, if you let that choice be made, then you have probably made a fatal decision.  So it’s time, RIGHT NOW, to prove otherwise.



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