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We reiterate our Neutral recommendation on Juniper Networks Inc. (JNPR - Analyst Report) post the announcement of third-quarter 2013 results.

Why the Reiteration?

Although Juniper delivered better-than-expected third-quarter results and the guidance was encouraging, we remain cautious about the increasing competition, uncertain economic conditions and constricted federal spending.

Nonetheless, Juniper’s traction in the Software Defined Networking (SDN) space is a major positive. Juniper is optimistic about the SDN products and believes that the technology is increasingly attracting customer attention. With gradual demand growth, we believe Juniper is well positioned to generate steady revenues from this area.

Juniper has been successful in developing collaborations with global channel partners and has strategic reseller relationships with Ericsson (ERIC - Analyst Report), IBM Corp. (IBM - Analyst Report) and Nokia Siemens Networks. In addition to these two major partnerships, Juniper has worked with more than 9,000 channel partners to reach customers globally.

Moreover, the company has developed partnerships with market leaders, such as Avaya Inc., Microsoft Corp. (MSFT - Analyst Report), NEC (NEC) and Symantec Corp. (SYMC - Analyst Report). These associations will help in enhancing its networking technology, which will ultimately help companies to transfer an enormous amount of data through different networks.

The company has undertaken cost-cutting measures to revive its bottom line. Central to its cost-cutting strategy is the reduction in headcount. These initiatives will help the company to improve operating performance, reduce operating expenses by about $50.0 million and also save $50.0 million on costs related to revenues, on an annualized basis. We believe that the layoffs will greatly help Juniper to improve profitability.

However, the consolidation in the telecom market is a headwind for the company. Considering Juniper’s broad exposure to the service provider market, the ongoing consolidations could increase uncertainties and restrict its revenue growth in the long term.

Moreover, to remain competitive, investments in newer and innovative products will be the prime focus, which will keep costs up. Hence, Juniper has to focus on market share growth to counter margin contraction.

Currently, Juniper has a Zacks Rank #3 (Hold).

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