Network equipment maker Juniper Networks Inc's reported a double-digit fall in revenue and a decline in gross margin as it struggled with weak technology spending, and gave an outlook that disappointed investors looking for stronger signs of a recovery,
Juniper Chief Executive Kevin Johnson gave little encouragement to hopes of an imminent recovery in technology spending, although he said conditions were stabilizing.
There are areas where visibility is improving, yet at the same time we realize that the macroeconomic recovery will take time, Johnson said, adding the company would keep an eye on its operating costs.
We're going to assume challenging economic conditions until we see evidence otherwise.
The company, which competes with bigger rival Cisco Systems Inc in making routing and switching products, forecast earnings per share excluding special items to be between 19 cents and 21 cents in the third quarter, on revenue of $770 million to $805 million.
That was roughly in line with the average Wall Street analyst forecast of 19 cents in earnings per share on revenue of $789.7 million, according to Reuters Estimates.
But investors were clearly expecting better, and Juniper's shares fell around 8.7 percent in extended trade to $24.25, wiping out recent gains.
The shares had risen around 38 percent over the past three months on expectations that the decline in technology spending was bottoming out.
I was hoping we might see slightly higher guidance, although it wasn't far off, said Signal Hill analyst Erik Suppiger.
MOSTLY BETTER THAN FORECAST
Tight credit and weak consumer spending have hit U.S. companies, including phone and cable service providers, harder than many expected.
Those companies, in turn, have reined in capital spending, hurting equipment makers like Juniper that were previously seen resilient to economic slumps because their equipment is crucial to supporting the global growth in Internet traffic.
Avian Securities analyst Catharine Trebnick also noted a fall in Juniper's second-quarter gross margin to 64.3 percent, below the company's targeted band of 65 to 67 percent.
My understanding was that they were very competitive price-wise in order to secure enterprise accounts, she said. She forecast a recovery for Juniper and the networking sector in the second half of 2010.
Aside from that, the second-quarter results were better than most analysts' forecasts.
Revenue of $786.4 million, while down 11 percent from a year earlier, compared to Wall Street's forecast of $766.3 million, according to Reuters Estimates. It also exceeded the high end of the company's own forecast range of $740 million to $780 million.
Quarterly net profit fell to $14.8 million, or 3 cents a share, compared with $120.4 million, or 22 cents a share, in the same quarter a year earlier.
Excluding items such as stock-based compensation expense and restructuring charges, profit was 19 cents a share, down from 28 cents a year ago. That was a penny above the average forecast on Wall Street, and above the company's own forecast of between 16 cents and 18 cents.
I thought it was a decent quarter, said Signal Hill's Suppiger, adding that Johnson's cautious outlook was to be expected.
Management teams have seen some improvements but they're very concerned that you can see the economy take a step down any given month and they get blind sided by another shortfall, he said. (Reporting by Ritsuko Ando; Editing by Richard Chang, Bernard Orr)