Juniper Networks‘ Switching division was the only segment that registered growth in 2014, reporting revenue growth of 13%, while routing and security sales were down 4% and 18%, respectively. Despite the recent slowdown in growth, Juniper has been gaining share in the switching market consistently over the past four years, while its core and edge router market shares have declined. We expect Juniper’s switching market share to grow in the future, and a better-than-expected increase – driven by new product launches and innovation as well as software-defined networking – could add up to 5% to the company’s valuation. With software-defined networking gaining steam, the need for virtual switches across the market is growing, which is why Juniper’s switching sales are bound to gain momentum in the future. Moreover, several contract wins and increased focus on R&D and product development are likely to drive sales going forward.
Our $28 price estimate for Juniper is over 10% ahead of the current market price.
Product Innovation & Opportunities
Over the last three quarters, Juniper’s switching revenues have declined consistently. The segment’s sales were down 12% in Q4 2014, 13.3% in Q1 2015 and 0.5% in Q2 2015. The company is optimistic about ramping up switching sales going forward on account of a number of recent contract wins as well as its realigned switching strategy with a focus on R&D and developing new products such as the QFX5100 and OCX1100.
There are a few other factors as well which may help the business improve sales in the future. Firstly, there is growing demand for next generation data center transformation projects, coupled with a need to deliver at a high degree of operational simplicity. Secondly, the rapid expansion of big data and high-quality video are driving demand for high performance 10GB/40GB Ethernet switches. Juniper mentioned in its recent earnings call that its QFX series switches performed very well across the enterprise business, cloud providers and carriers. And the second half of the year is likely to be even better.
Open architecture that enables SDN is gaining significant traction in the market. Companies such as Juniper offering SDN allows customers to choose cheaper white-label hardware, and the role of networking companies gets confined to providing a software layer. Since the main component of software layers is virtual switches, Juniper appears well positioned for the software-defined networking domain. Cloud-building is another domain which is driving demand as more and more enterprises look to create scalable virtual networks. Going forward, Juniper?s ability to promote the open converged framework concept could help it gain share in the global switching market, which is currently dominated by Cisco.