When the virus outbreak rattled markets in recent months, one sector that remained less affected was information technology. As the uncertainty deepens, networking solutions provider Juniper Networks, Inc. (NYSE: JNPR) sees both headwinds and benefits in the second half of the year.
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Despite the slowdown, the company is witnessing stable demand, owing to the mass adoption of digital technology across the business world. It underscores the important role networking solutions play in digital transformation. Also, these opportunities are going to stay in the coming years, driving demand for Juniper’s switching, routing, and security products.
Meanwhile, experts are cautious about the stock’s prospects and predict a moderation in the value in the coming months. Going by the analysts’ view, the stock might not be a wise investment option right now, though the modest valuation makes it affordable.
Strong Backlog
The Sunnyvale, California-based hardware maker expects the improved manufacturing capacity and a healthy backlog, especially in the Cloud and Service Provider segments, to help it tide over the supply chain challenges in the current quarter. On the positive side, the changed operating conditions resulted in a reduction in costs, such as travel expenses, signaling an improvement in margin performance.
“We’re entering Q3 with a strong backlog and remain optimistic regarding our ability to navigate ongoing supply chain disruption. We are executing well in the current environment, while the COVID-19 pandemic continues to present challenges, we believe, we are successfully meeting the needs of our customers and helping many of them deliver their critical bandwidth required to support the global economy,” said Rami Rahim, chief executive officer of Juniper, at the second-quarter conference call.
Segment Performance
The weakness in the Enterprise segment so far this year is temporary. The scale and scope of this relatively large business bode well for the company as far as its long-term prospects are concerned. Also, the Mist division witnessed rapid growth in the first half – when it was most needed. Considering the volatility in the market, Juniper executives continue to focus on large customers who have the capacity to stay unaffected by the crisis.
The stable cash position, along with the cost management initiatives, should allow the management to continue investing in the business. Juniper has constantly strived to bring innovation to the business, with the latest such move being the launch of AI-supported solutions for advanced networking. The new offering positions the company to compete directly with networking giant Cisco Systems Inc. (CSCO). But the effectiveness of the initiatives will depend a lot on how the COVID scenario evolves.
Mixed Q2
At $0.35 per share, second-quarter earnings were in line with the consensus estimate but they came below last year’s number. Though revenue remained broadly unchanged at $1.09 billion, it exceeded the forecast.
Want to read management/analysts’ comments on Q2 results? Check Juniper’s earnings call transcript
Juniper’s shares, which have been almost flat over the past few years, bounced back quickly after losing ground during the recent market mayhem. They got a boost this week after the company came out with positive numbers from the June-quarter. Currently, the stock is trading broadly at the levels seen a year ago.