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Juniper Networks Inc. (JNPR - Analyst Report) is scheduled to announce its third quarter 2012 results after the closing bell on October 23, 2012. In the run up to the earnings release, we notice minimal movement in analysts’ estimates.

Second Quarter Recap

Juniper Networks' revenues declined 4.2% year over year, but increased by 4.0% sequentially to $1.07 billion in the reported quarter. The year-over-year decline was mainly attributed to the weakness in the Service Provider segment in EMEA and APAC regions. Whereas, the sequential increase was due to good Enterprise and Service Provider growth in the Americas, which offset weakness in other regions.

The company generated 74.9% of its consolidated quarterly revenue from product sales, while the remaining 25.1% came from service revenues. Both product revenues and service revenues declined 9.7% and 17.4%, respectively, on a year-over-year basis.

On a GAAP basis, Juniper Networks' gross margin was 63.6% in the second quarter versus 67.2% in the year-ago quarter. Favorable routing mix was somewhat offset by a higher mix of low margin switching revenue and some cost increases in security.

Total cash, cash equivalents and investments in the reported quarter were $3.04 billion compared with $3.43 billion in the previous quarter. Juniper generated cash from operations of $160.9 million in the quarter, down from $102.3 million in the prior year.

Third Quarter Guidance

For the third quarter of 2012, the company expects revenue in the range of $1.04 billion to $1.07 billion. Non-GAAP gross margin is expected to remain roughly flat sequentially. Moreover, non-GAAP operating margin is projected to be in the range of 13% to 14%. This is expected to generate non-GAAP net income per share of between 15 cents and 18 cents on a diluted basis.

Agreement of Analysts

Out of the 11 analysts providing estimates for the third and fourth quarters, none revised their estimates in the last 30 days. For fiscal 2012, only one out of twelve analysts raised the estimate over the last 30 days, with no downward revision. Moreover, out of 11 analysts providing estimates for fiscal 2013, only 2 analysts raised estimates in the last 30 days.

Again some analysts believe that Juniper is a good play, to gain from carrier capex recovery for patient investors, but remain apprehensive regarding the near-term macroeconomic uncertainty and relatively high European exposure. IT infrastructure spending remains at a low level and recent developments indicate more uncertainty about a capex recovery in the second half.

Some analysts are of the opinion that the company is on track of reducing its operating expense by a total amount of $150MM during the current year 2013. The analysts are also of the opinion that Juniper has to show considerable evidence that it is living up to the promise and will be delivering a mid single digit growth during the calendar year 2013 and beyond in order to grow from current levels.

In this environment, some analysts are concerned about Juniper’s go-to-market strategy and its product execution. This apart, Juniper’s excessive spending on its wireline business may create problems for the company going forward as the growth opportunity in this segment is not very high. The company is also having a tough time in the service-provider router market.

Moreover, some analysts doubt management capability as the company is failing to innovate and launch new products and solutions to attract customers.

Magnitude of Estimate Revisions

While there are no changes in the Zacks Consensus Estimate for the third quarter in the last 30 days, we do see estimates moving down by 3 cents over a period of 90 days to 10 cents. For the December quarter, estimates have remained unchanged over the last 30 days, while moving down 5 cents over the last 90 days to 16 cents. Over the last 90 days, the Zacks Consensus Estimate for fiscal 2012 has moved down by 5 cents to 44 cents, while it remained unchanged over the last 30 days.

Our Recommendation

Juniper delivered modest second quarter 2012 numbers, but witnessed a decline in revenue on a year-over-year basis. However, EPS exceeded the Zacks Consensus Estimate. Although the company delivered a decent EPS, the operating performance of the company was mediocre as costs increased substantially over the period.

On a positive note, Juniper’s revenue in the Americas increased sequentially. Therefore, the fact that international opportunities are unfolding is a big positive in this respect.

On the negative side, Enterprise Networking may witness less business going forward. Stiff competition from industry stalwarts like Cisco Systems Inc. (CSCO - Analyst Report) and Hewlett-Packard Company (HPQ - Analyst Report) is also a headwind for the stock.

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