Juniper last week offered up fresh evidence that its enterprise networks strategy is working, as it posted third-quarter financial results that included security-product sales growth nearly double that of competitors over the past year.
The company made a determined effort to enter the enterprise market about 18 months ago, with the US$4 billion acquisition of leading firewall and VPN vendor NetScreen. Juniper's move perplexed the industry at the time, because CEO Scott Kriens pledged in 2002 not to compete with the company's core service provider customers by also selling routers and other products into the enterprise.
But Juniper maintains that it always sold into the enterprise via indirect channels even before the NetScreen acquisition.
Enterprise now accounts for one-third of Juniper's yearly revenue of more than US$2 billion, Kriens said last week during a conference call to discuss third-quarter results, which beat analyst forecasts on both revenue and earnings - and enterprise product sales, which were up 17 percent sequentially. "For a company looking to get into the enterprise, three-quarters of a billion dollars in business is not bad," Kriens quipped.
Leading into the third quarter, Juniper's enterprise business appeared stalled. Sequential sales of the NetScreen products had fallen below analyst expectations for three of the past four quarters.
In the second quarter, for example, Juniper experienced soft security-product sales with sequential quarterly growth of only 1.4 percent, according to UBS Warburg. UBS points out, however, that the security hardware market slowed in the fourth quarter of 2004 and the first quarter of 2005.
Nonetheless, "Juniper has only achieved our estimate for security product sales in one of the four quarters since the company has acquired NetScreen," wrote UBS Analyst Nikos Theodosopoulos in a mid-September bulletin.
UBS forecast 5 percent sequential growth in security for Juniper in the third quarter, but the company had an 8 percent gain. Even more impressive was the 37 percent year-over-year growth that Juniper says almost doubled the growth of its "pure play" peer group security competitors - Check Point Software, SonicWall and WatchGuard Technologies - over the same period.
Cisco, which Juniper does not consider to be in its pure play security peer group, because it includes sales of routers with integrated security, had 25 percent year-over-year growth in security sales in its fourth quarter that ended July 30.
Juniper scoffed at the sober predictions analysts had for the third quarter.
"It was interesting - actually more comical - watching the research come out," says Jim Dolce, Juniper's executive vice president of worldwide field operations.
The enterprise market is very seasonal, he says. Year-over-year comparisons provide a more accurate indication of performance, he adds.
Dolce says Juniper is pleased with its results in the enterprise.
Not all is well
Still, there look to be some laggards in Juniper's enterprise portfolio, which includes M- and J-series routers, and the application acceleration and WAN optimization products acquired midyear from Redline Networks and Peribit Networks, respectively.
The J-series routers, which have been shipping for about a year, logged US$2 million to US$3 million in sales in the third quarter, Kriens said. This is up slightly from the US$1 million to US$2 million in sales from the first two quarters, but accounts for less than 1 percent market share in access and branch routers, according to Dell'Oro Group.
And sales from the Peribit, Redline and Kagoor Networks acquisitions were disappointing, according to UBS. "$11 [million] to $12 million in [third quarter] sales suggest little growth compared to when these companies were private," Theodosopoulos stated in his bulletin.
J-series tabulations are "not very relevant," Dolce says, because Juniper is shooting for the enterprise backbone with its M-series routers. Winning the backbone creates pull through for the J-series branch routers, he said.
"It's more difficult to sell the branch if someone else has the backbone," Dolce says. "Our efforts are focused on winning some of that core enterprise backbone."
Analysts also note that Cisco owns 90 percent of the access and branch router market, and its Integrated Services Routers are experiencing the fastest product ramp in Cisco's history.
"That's Cisco's bread-and-butter," says Zeus Kerravala, an analyst at The Yankee Group.
Market share aside, mindshare might be another albatross for the J-series. NetScreen user MIPS Technologies is standardizing on Cisco for routing - and perhaps even security platforms, such as VPNs and firewalls.
"Single vendor instead of mix and match," says Steve Ozoa, Unix and network systems administrator at MIPS. "We've always been Cisco for routing. [J-series] really just didn't come to mind."
Sales of products from Juniper's three most recent acquisitions, meanwhile, are "on plan," Dolce says.
"I haven't been disappointed in anything this quarter," he adds. "It was a great quarter."
"First Juniper stepped up to the plate and hit the ball out of the park; and then they took the bat and beat the catcher to death," says Steve Kamman of CIBC World Markets. "What they delivered was well over and above what we were looking for."
Going forward, Juniper will fine-tune the global channel system put in place over the last year and continue transitioning its sales teams to develop relationships with companies and sell them solutions instead of boxes, Dolce says. From a product perspective, Juniper offers everything that's important for a corporation, he says.
As for potential conflicts with service provider customers that Kriens alluded to three years ago, Dolce says Juniper has worked things out.
"A lot of this security business gets to the enterprise via a customer premises equipment resale or a managed service arrangement with a carrier. We figured out the best way to do both," he says.