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Juniper Networks Inc. (JNPR - Analyst Report) posted adjusted earnings per share (EPS) of 17 cents in the fourth quarter of 2012, above the Zacks Consensus Estimate of 15 cents.

Revenues

Juniper’s fourth quarter revenues inched up 2.0% to $1.14 billion from the year-ago quarter. The total revenue increased 2.0% sequentially. The sequential increase in revenue can be attributed to the growth in Americas revenues, which is again influenced by the modest improvement in EMEA. The yearly increase was influenced by the growth in U.S. service providers.

The company generated 74.3% of its consolidated quarterly revenue from product sales, which dropped 0.02% from the year-ago quarter. The remaining 25.7% came from service revenues, which grew 7.4% on a year-over-year basis.

Revenue by Region                                              

As per geographic segments, the Americas contributed around 53.2%, Europe, the Middle East and America (EMEA) 29.6% and Asia-Pacific (APAC) 17.1% to total revenue. On a year-over-year basis, revenue from the Americas was up 16.5% reflecting Service Provider growth.

EMEA revenue was down 15.3% year over year. The company is facing challenge in the region. Moreover, the company continues to witness modest improvement in the demand scene, with specific demand coming from the Western and Southern Europe. Again, APAC revenue was down 2.4% year-over-year due to a significant decline in China service provider.

Operating Results                                                 

On a GAAP basis, Juniper Networks’ gross margin was 35.7% in the fourth quarter versus 62.3% in the year-ago quarter.

Operating margin was 11.5% versus 11.9% in the year-ago quarter. Operating expenses increased substantially to $602.1 million, driven by higher research & development expense and sales & marketing expense.

Net income was $95.7 million compared with $96.2 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 $95.8 million or 19 cents per share versus $111.8 million or 21 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Total cash, cash equivalents and investments in the reported quarter were $2.85 billion compared with $4.05 billion in the previous quarter. Long term debt was $999.2 million, roughly flat sequentially. Cash flow from operations was $155 million, down sequentially as a result of an increase in working capital. DSO was 35 days in the quarter.

First Quarter 2013 Guidance                                                                  

The company expects first quarter ending to be in the range of $1,050 million to $1,070 million. Moreover, non-GAAP gross margin will be in the range of 64% plus or minus 0.5%.This apart, non-GAAP operating expenses will be $515 million plus or minus $5 million. Non-GAAP net income per share will range between $0.18 and $0.22 on a diluted basis. 

Conclusion   

Juniper delivered decent fourth quarter 2012 results by beating the Zacks Consensus Estimate on the bottom line. However, year over year comparisons were not much encouraging. Cash position is not so encouraging while debt remained constant. Growth in operating expenses was substantial. First quarter guidance reflects cautious spending nature of its customers. But we are positive on Juniper’s new product traction, focus on revenue growth, cost reduction initiatives specially aided by reducing headcount and improving execution on supply chain and procurement activities.

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

The company has a Zacks Rank #3 (Hold).

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