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On Nov 15, Juniper Networks Inc. (JNPR - Free Report) was downgraded to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The downgrade can primarily be attributed to the unimpressive third-quarter 2017 results of the company.

In the last quarter, Juniper reported non-GAAP earnings of 55 cents per share that decreased 5.2% year over year primarily due to lower revenues, which fell 2.1% to $1.26 billion. Both Cloud and Telecom/Cable verticals did not perform well, resulting in a decline in the top and bottom-line figures.

Juniper stock has lost 6.5% year to date, underpeforming the 3.5% gain of the industry it belongs to.

Underlying Key Factors

In the just reported quarter Juniper’s Cloud revenues declined 4% year over year and more than 9% sequentially to almost $345 million. Management cited spending delay by cloud and hyper-scale customers to be the major cause of decline. This is also anticipated to drag the top line down in the current quarter as well.

Juniper stated that the ongoing transition of cloud customers from 10-gigabit to 40-gigabit and 100-gigabit was the primary reason behind low revenues. Moreover, an architectural shift from scale-up architectures to scale-out architectures (lean core architectures, per Juniper) also hurt growth.

The company’s Telecom/Cable revenues declined for the second consecutive quarter, when compared on a year-over-year basis. Revenues declined 3.8% year over year to roughly $577 million in the third quarter.

Further, the company’s expansion into low-margin markets like Asia-Pacific has negatively impacted customer mix. Additionally, the growing proportion of low-margin switch business in the product mix compared with the high-margin router business acts as a headwind for gross margin expansion.

Unfavorable customer mix, higher costs of certain memory components and lower revenues resulted in 110 basis points (bps) decline in product gross margin.

Costs incurred by spare parts in support of expansion of the company’s installed base and higher delivery costs related to growth in emerging markets dragged down services gross margin by 30 bps during the quarter.

Notably, Juniper faces strong competition from peers like Arista Networks (ANET - Free Report) , Cisco Systems (CSCO - Free Report) and Check Point Software Technologies (CHKP - Free Report) , which will continue to be a headwind for the company.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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