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Juniper Networks Inc. (JNPR - Analyst Report) posted adjusted earnings per share (EPS) of 14 cents in the third quarter of 2012, above the Zacks Consensus Estimate of 10 cents.

Revenues

Juniper’s third quarter revenues inched up 1.1% to $1.12 billion from the year-ago quarter and came slightly above the Zacks Consensus Estimate of $1.07 billion. The marginal growth was aided by Switching and Services sales, contribution from Europe as well as Service Providers. This was, however, offset by lower Security solutions sales, weak contribution from Enterprises and the Asia-Pacific (APAC) region.

The company generated 75.0% of its consolidated quarterly revenue from product sales, which dropped 2.8% from the year-ago quarter. The remaining 25.0% came from service revenues, which grew 14.9% on a year-over-year basis.

Revenue by Region

As per geographic segments, the Americas contributed around 50.1%, Europe, the Middle East and America (EMEA) 28.7% and APAC 21.2% to total revenue. On a year-over-year basis, revenue from the Americas was up 0.7% reflecting Service Provider growth.

EMEA revenue was up 3.2% year over year. Despite soft demand, revenue from this region increased owing to improved Enterprise revenue and some new wins in Service Provider.

APAC revenue decreased 0.5% year over year. Lower Enterprise revenues resulted in the year-over-year decline.

Operating Results

On a GAAP basis, Juniper Networks’ gross margin was 60.3% in the third quarter versus 64.4% in the year-ago quarter.

Operating margin was 3.8% versus 12.4% in the year-ago quarter. Operating expenses increased substantially to $631.1 million, driven by higher research & development expense and sales & marketing expense.

Reported net income was $16.8 million compared with $83.7 million 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 $75.4 million or 14 cents per share versus $102.8 million or 19 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Total cash, cash equivalents and investments in the reported quarter were $4.05 billion compared with $3.04 billion in the previous quarter. Long term debt was $999.1 million, roughly flat sequentially. Juniper generated cash from operations of $173.0 million in the quarter, down from $212.0 million in the prior quarter.

Days Sales Outstanding (DSO) was 32 days in the quarter, down from 34 days in the last quarter.

Fourth Quarter Guidance

For fourth quarter 2012, the company expects revenue in the range of $1,100 million to $1,130 million. Non-GAAP gross margin is expected in the 63.5%–64.5% range. Non-GAAP operating expenses will remain flat sequentially, while non-GAAP operating margin is projected within the range of 14% to 16%. Juniper expects non-GAAP net income per share in the range between 19 cents and 22 cents on a diluted basis, assuming a flat share count and tax rate of 32%.

Conclusion

Juniper delivered decent third quarter 2012 results by beating the Zacks Consensus Estimates both on the top and bottom lines. However, year over year comparisons were not much encouraging. Cash position improved, while debt remained constant. Growth in operating expenses was aided by one-time items. Juniper provided a bleak fourth quarter guidance in view of the cautious spending nature of its customers.

But we are positive on Juniper’s new product traction, focus on revenue growth, cost reduction initiatives by way of reducing headcount and improving execution on supply chain and procurement activities.

Despite stiff competition from F5 Networks Inc. (FFIV - Snapshot Report) and Cisco Systems Inc. (CSCO - Analyst Report), we believe that Juniper is well-positioned in the networking space and could capitalize much of the worldwide spending on information technology.

Currently, Juniper has a Zacks #2 Rank, implying a short-term Buy rating.

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