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Juniper Networks Inc. (JNPR - Analyst Report) posted adjusted earnings per share of 21 cents in the second quarter of 2013, surpassing the Zacks Consensus Estimate of 18 cents.

Revenues

Juniper’s second-quarter 2013 revenues moved up 7.2% to $1.15 billion from the second quarter of 2012 and 8.6% sequentially. The improvement in revenues can be attributed to two of the most important factors.

The initial one being an increase in the service provider spending environment coupled with the increase in enterprise demand. This apart, the earlier-than-anticipated recognition of some U.S. federal revenue is also a factor for increasing revenue.

Juniper generated 75.1% of its consolidated quarterly revenues from product sales, which increased 7.3% from the year-ago quarter. The remaining 24.9% came from service revenues, which grew 6.6% on a year-over-year basis.

Revenues by Region

As per the geographic segments, the Americas’ revenues were up 15.0% on a year-over-year. In the Americas segment, Enterprise performed well in this quarter, driven by federal and financial services which resulted in a double-digit sequential as well as year-over-year growth. Even Federal had a good quarter excluding the benefit of any deferred revenue recognition.

EMEA revenues were up 0.5% year over year, attributable to the enterprise strength, while service provider's revenues were flat.

Again, the Asia-Pacific revenues were down 6.7% on a year-over-year basis to $174.7 million.

Operating Results

On a GAAP basis, Juniper Networks’ gross margin was 62.6% in the second quarter versus 62.2% in the year-ago quarter.

Operating margin was 12.0% versus 8.1% in the year-ago quarter. Operating expenses increased by 0.1% to $582.0 million, driven by sales & marketing expenses and also as a result of higher Acquisition and litigation charges.

Net income was $97.9 millionor 19 cents per share compared with $57.7 million or 11 cents per share in the prior-year quarter. Excluding special items such as restructuring charges, amortization, acquisition-related charges, non-recurring income tax adjustments, but including stock-based compensation expenses, non-GAAP adjusted net income in the quarter was $108.2 million or 21 cents per share versus $54.2 million or 10 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Total cash, cash equivalents and investments in the reported quarter were $2.79 billion compared with $2.66 billion in the previous quarter. Long-term debt was $999.3 million, roughly flat sequentially. Cash generated in operating activity is $284.4 million, while the company used cash of $8.9 million in the previous quarter. Days’ Sales Outstanding (DSO) was 40 days in the quarter, down from 45 days in the last quarter, due to improvement in order and shipment.

Third-Quarter 2013 Guidance

Juniper expects third-quarter revenues in the range of $1,140 million to $1,180 million. With non-GAAP gross margin is expected to be in the range of 64.5% which may move up or down in the range of 0.5%.

The company expects non-GAAP operating expenses to be $525.0 million, plus or minus $5.0 million, whereas the non-GAAP operating margin will likely be 19.5%. Non-GAAP earnings per share will range between 29 cents and 32 cents. 

Outlook

Juniper delivered decent second-quarter 2013 results, beating the Zacks Consensus Estimate and witnessing decent revenue growth. The company provided decent third-quarter guidance and also expects good operating performance.

The company witnessed strong revenue growth in some of its key business markets and is confident of having a good routing and switching portfolio, like introduce a new product like the EX9200. While the company’s new products, cost reduction initiatives and improving execution are positives, we remain cautious about the increasing competition

We, therefore, believe that despite Juniper’s position in the networking space and growth potential across its served markets, the shares will remain range bound.

Moreover, we believe that stiff competition from F5 Networks Inc. (FFIV - Snapshot Report), Cisco Systems Inc. (CSCO - Analyst Report) and AT&T Network (T - Analyst Report) constricted federal spending will pressurize fundamentals.

Juniper has a Zacks Rank #3 (Hold).

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