Q3 2020 Juniper Networks Inc Earnings Call

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Greetings and welcome to the Juniper networks third quarter 2020 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator systems. During the conference. Please press star zero on your telephone.

Keypad as a reminder, this conference is being recorded.

I would like to turn this conference over to your host Mr., Jeff <unk> VP of Investor Relations.

Thank you you may begin.

Thank you operator, good afternoon, and welcome to <unk> third quarter 2020 conference call.

Joining me today are Rami Rahim, Chief Executive Officer, and Ken Miller, Chief Financial Officer.

Today's call contains certain forward looking statements based on our current expectations. These statements are subject to risks and uncertainties and actual results might differ materially. These risks are discussed in our most recent 10-Q, the press release and CFO commentary furnished with our 8-K filed today and in our other.

<unk> SEC filings.

Forward looking statements speak only as of today Juniper undertakes no obligation to update any forward looking statement or.

Our discussion today will include non-GAAP financial result.

Reconciliation information can be found on the Investor Relations section of our website under financial reports.

Commentary and why we consider non-GAAP information a useful view of the company's financial results is included in today's press release follow.

Following our prepared remarks, we will take questions.

Please limit yourself to one question and one follow up.

With that I will now hand, the call over to Rami.

Good afternoon, everyone like many of you on this call we're continuing to navigate the COVID-19 pandemic and take actions to both meet the needs of our customers and ensure the safety of our workforce.

Most of our employees are continuing to work from home and successfully leveraging the various technologies enabled by the network to maintain a high level of productivity. Despite the currency environment. The.

To this last point I'd like to reiterate my belief that the strategic importance of the global network has never been clearer and the long term outlook for the markets. We serve we think that we're.

We are investing not only survive the current environment, but to capitalize on the opportunities our markets present and to come out stronger on the other side now on to our results.

We delivered solid results during the September quarter with revenue of $1.138 billion exceeding the midpoint of our guidance due to better than expected results in our service provider and enterprise verticals, both of which grew year over year upside in these areas more than offset some lumpiness with our cloud customers.

Non-GAAP earnings per share of 43 cents was in line with the midpoint of our forecast ordered one in our enterprise business, which saw double digit order growth year over year.

Despite the challenging macro backdrop.

We are executing well in the current environment. We firmly believe we are taking share and better.

Okay, multi differentiation along with our investments in go to market are enabling us to win at a time with challenging market conditions have been firstly affected our competitor.

Our momentum is strong entering our fiscal fourth quarter and this momentum is increasing my confidence that we will be able to grow the business on an organic basis for the full year 21.

With that said I'd like to touch a bit on our strategy and some of the actions we're taking to win the next decade of networking specifically at the beginning of this year, we focused our sales team product management teams and engineering teams Im compelling and differentiated use cases targeting the enterprise.

Automated when solution and cloud ready data centers.

We believe each of these use cases is likely to be very attractive market tailwinds over the next several years and focusing our resources on need specific areas should enable us to accelerate our growth as the opportunities unfold.

It's worth mentioning that each of these use cases span across the three industry verticals that we target and by focusing our resources on these areas, we shouldn't have the opportunity to speed time to market accelerate share and levers developing cost lives on big opportunities like the move to AI driven cloud managed.

[noise] textures, 400 gig and Fiveg in the years to come.

The early feedback from our teams has been incredibly positive.

We're already starting to see the benefits of this alignment, which you'll hear me discuss more in future calls.

Now I'd like to provide some additional insight into the quarter and address some of the key developments, we are seeing within each of our core verticals.

Starting with the enterprise, we're particularly encouraged by the improvements in where it has this business experienced double digit sequential growth.

And slightly grew on a year over year basis.

We saw improved momentum in the USA and Asia, which more than offset weakness in your order growth was solid and exceeded our expectations, particularly in the North American enterprise and U.S federal vertical based on our results. We believe we are taking share dynamic we expect to continue in the future.

Our optimism is fueled by the customer response to our AI driven enterprise vision, which we began executing too early last year.

This effort started with an investment in go to market head Count and was followed shortly thereafter with the acquisition of the system.

Smoothed have not fully enabled us to broaden our reach but also added some game changing AI and cloud management technology, which we are extending across our enterprise portfolio.

The mist technology is truly differentiated and has enabled our customers not only improved network performance, but also to capture material operational savings and delivered significant improvement in end user experience.

The differentiation of mist, which has been extended to our wired offerings can be seen in the order momentum I mentioned this quarter.

To this point Mis reported another record quarter with new logos once again growing more than 100% year over year and ordered rising more than 180% year over year. We also saw very strong adoption of our mixed wired assurance capabilities and corresponding pull through of our EPS switching portfolio, which.

Positively impacted orders into Q3 timeframe and should benefit revenue on a go forward basis.

To this point joint NIST, Mds orders exceeded a $200 million annualized run rate in the Q3 timeframe our investments in go to market are beginning to pay off and we're also seeing positive momentum in the channel both of which are creating optimism that the success. We have been seeing is likely to continue in future quarters.

Our agreement to acquire 128 technology represents the next step in our AI driven enterprise evolution 120 technology is truly unique and offered customers material benefit over any alternative SD Wan solution today. Some of the benefits include much lower hardware cost much lower latency and.

Significantly lower bandwidth costs. In addition to these benefit customers will see application performance improved and users will we see a better overall experience one.

120 technologies user centric SP when is the perfect complement to our AI driven enterprise solutions delivering market, leading insight and automation from clients to cloud I expect our enterprise momentum to build and reported to come and believe this business is positioned to not only grow organically and take share in 2020, but also in 2020.

In one and beyond.

5% year over year despite.

Okay perspective.

Although we are continuing to see some COVID-19 related capacity benefit we believe the primary driver of the surface water strength. We are seeing continues to be our efforts to diversify this business across customers product and geography.

Similar to Q2.

We continued to benefit from the strength with our U.S. cable customers as well as tier two and tier three carriers in international markets.

We also saw solid demand for our switching products.

However, in addition to our routing solution, while we did see some weakening in our ESP security business. We believe this was a function of timing I would note that the pipeline here remains strong.

Our diversification efforts are only likely to strengthen as we increasingly target access aggregation and met for revenue opportunities and introduce new software centric testing and automation capabilities acquired through net around that further enhance our ability to win in these growing areas of the routing market where historically.

Haven't played.

Based on Q3 results and Q4 pipeline, we continue to believe our service provider business is likely to see a mid single digit decline in 2020.

While we acknowledge some of our service provider customers are continuing to face business challenges that may impact their ability to spend in future quarters based on our recent momentum and customer conversations. We believe this business has the potential to further stabilize in 2021.

Our cloud business came in slightly weaker than we originally expected we believe the decline on both a quarter over quarter and year over year basis was largely a function of lumpiness following five consecutive quarter of year over year growth. We believe this lumpiness reflect normal customer consumption patterns, our cloud backlog remains healthy.

We believe the general spending outlook from a hyperscale and tier two customers remain favorable we believe we are holding our land footprint and are increasingly optimistic regarding our potential to gain datacenter share in the years to come while we now believe our cloud business is likely to be flat to slightly up for the full year 2020.

We remain confident in our ability to grow this business in 21 and beyond.

Importantly, we are continuing to make progress and 400 gig with additional wins a strong pipeline of opportunities in both our cloud and service provider segment, while many of our wins are addressing wider use cases, where we have historically been strong. We've also secured net new switching opportunities, including a design win with a top.

10 cloud provider, we continue to expand our 400 gig product set and delivering new features needed to gain share in this critical market. We believe we have the right products and customer engagement to both protect our wider footprint and capture switching share at the 400 gig cycle unfolds across our cloud and carrier customers in the year.

Dycom.

We continue to expect the 400 gig opportunity to begin in earnest next year with revenue starting to become material during the second half of next year.

Our software revenue represented less than 10% of sales for a second.

Third quarter due to a lower mix of certain products that drive higher on boxed attach rate of perpetual licenses that said, we continue to see strong adoption of our mist and security subscription and our efforts to transition certain perpetual software offerings to term based subscriptions are beginning to drive improved.

Results, we believe growth in these recurring software offering is an encouraging dynamic that should improve visibility over time and gives us confidence in the long term outlook for our software revenue.

I'd like to mention that our services team delivered another solid quarter and continues to grow on a year over year basis due to strong renewals and service attach rates are.

Our services team continues to execute extremely well and im sure our customers receive an excellent experience I.

I would like to extend my thanks to our customers partners and shareholders for their continued support and confidence in juniper I, especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders I will now turn the call over to Ken who will discuss our quarterly financial results in more.

Detailed.

Thank you Rami and good afternoon, everyone.

Let's start by discussing our third quarter results and then provide some color on our outlook.

We ended the third quarter of 2020 at $1 billion at $138 million in revenue above the midpoint of our guidance range.

Non-GAAP earnings per share of 43 cents was in line with the midpoint of our guidance.

Revenue was up slightly showing year over year growth for the first time this year.

While lead times improved on a sequential basis, we continue to experience supply constraints and lead times remain extended on certain products due to the COVID-19 pandemic.

Looking at our revenue by vertical.

On a sequential basis service provider and enterprise crew, while cloud declined as expected.

On a year over year basis service provider grew 5% showing year over year growth for the first time in 13 quarters.

Enterprise grew slightly and exceeded our expectations.

Strength in our service provider and enterprise verticals more than offset a 7% year over year decline in cloud.

We saw revenue in all geographies grill on a sequential basis.

From a technology perspective on a year over year basis routing increased 6%, while switching decreased 5% and security decreased 23% our services business grew 4% year over year.

In reviewing our top 10 customers for the quarter. Moreover.

Moreover, cloud fiber service provider and one was an enterprise.

Our top 10 customers accounted for 31% of our total revenue as compared to 34% in the third quarter of 2019.

Non-GAAP gross margins were 59.0%, which was below our expectations primarily due to mix.

<unk> for the elevated logistics and other supply chain related costs due to Carbonite team, we would have posted non-GAAP gross margin of approximately 60%.

Non-GAAP operating expenses were down 2% year over year and flat sequentially, which was in line with our guidance range.

Our operating expenses in the third quarter benefited from Carbonite team related savings.

Cash flow from operations was $116 million.

Paid $66 million in dividends, reflecting a quarterly dividend of 20 cents per share.

And repurchased a $100 million worth of shares in the quarter.

Total cash cash equivalents and investments at the end of the third quarter of 2020 was $2.6 billion essentially flat from the second quarter.

Now I would like to provide some color on our guidance, which you could find detailed in the CFO commentary available on our Investor Relations website.

As a reminder, our guidance includes the impact of the acquisition of that rounds, but excludes any impact from the pending acquisition of 120 <unk> technology.

At the midpoint of our Q4 guidance, we expect to see sequential revenue and earnings growth.

Confidence in our forecast is driven by strong backlog and healthy momentum.

Q4 forecast assumes sequential growth in our enterprise and cloud verticals and a slight sequential decline in service provider.

We expect to see sequential volume driven improvements in our non-GAAP gross margin.

In addition, we expect logistics and other supply chain related costs due to the effects of the ongoing pandemic to remain elevated but slightly lower than Q3 levels.

We expect fourth quarter non-GAAP operating expenses to be modestly up from Q3 levels.

We will remain focused on prudent cost management, while continuing to invest to capture future opportunities.

We expect non-GAAP other income and expense are aligning to be an expense of approximately $15 million on a net basis in Q4 and remain at this level in future periods.

The expected negative impact on NOI me is due to the lower interest rate environment, our capital return initiatives and recently announced acquisitions.

Turning to our capital return program. Our board of Directors has declared a cash dividend of 20 cents per share to be paid during the fourth quarter.

We remain committed to paying our dividend and will remain opportunistic with respect to share buybacks.

While there is a lot unknown about the future due to the pandemic and other macroeconomic uncertainty before we move on to today I would like to provide a few comments on our outlook for 2021.

Presuming no further carbonite team related economic deterioration.

Based on the current momentum we are seeing and the investments we're making to capitalize on opportunities ahead, we expect to return to organic revenue growth on a full year basis and 2021.

Assuming the pending acquisition of 120th technologies closes, we expect nearly a point of additional revenue growth, which we would expect to be weighted towards the second half of 2021.

We expect full year 2021, non-GAAP gross margin to be approximately 60% up from 2020 levels.

The improvement is expected to be driven by increased volume software sales and our value engineering efforts.

We also expect to see a gradual reduction carbonite team related costs through the course of 2021.

As a reminder, our gross margin tends to be seasonally lower in Q1 with gradual volume related improvement throughout the course of the year.

We expect 2021, non-GAAP operating margin to be approximately flat year over year as improved gross margin will be offset by increased cost related to the pending acquisition of 120 <unk> technologies, the gradual normalization of Cobra related savings and targeted investments to capitalize on growth opportunities ahead.

Due to lower cash and investment balances combined with lower investment yields we expect a negative impact non-GAAP NOI me in 2021.

We expect non-GAAP EPS to grow slightly faster than revenue.

Our long term financial objectives have not changed we plan to deliver sustainable revenue growth improved operating margin and earnings expansion over time.

In closing I would like to thank our team for their continued dedication and commitment to juniper success, especially in this challenging environment now.

Now I'd like to open the call for questions.

And we will.

We'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation somewhat indicate your line is in the question queue. You May Press Star two if you like your love. Your question from MCU participants using speaker equipment. It may be necessary for you to pick up your handset before price.

He just started Q1 moment Molly poll for questions.

Our first question comes from the line of John with Oppenheimer. You May proceed with your question.

Thanks, Hey, guys nice quarter couple of questions for me first on the switching side.

[noise], you've talked about the progress clearly off to your campus, which is which missed as you're seeing a pull through but the overall category was still down 5%.

Should I interpret this to me that the data center switching was weak in the quarter. If you can give us some color around that and then second question.

Around the macro clearly you sound more confident here heading into towards the end of the year and that's great to hear but we are starting to see second wave kind of shutdowns happening in Europe.

And they're on a selective basis, perhaps not as extensive but.

But nonetheless happening in Europe.

Can you give us some.

So what are you hearing from your people over there and how you've incorporated.

Central this came to your.

Outlook.

Yes. Thanks for the question. So I'll address both of your questions and maybe Ken will add some additional color on the macro question.

The short answer to the switching question is no actually data center.

And some has been quite strong for us.

So why is it that we saw a 5% reduction or year over year decline in revenue for switching.

Entirely lower the vast majority of it is due to the dynamics around.

A large hyperscaler deployments of our switching technology in wide area use cases.

If you look at our switching performance in the data center for both enterprise and service provider is actually up and up meaningfully. So we're actually quite encouraged with the products and the technology that we're offering as well as the momentum we're seeing in the market and I think our focus on solutions for the datacenter in both the telco.

And the enterprise is actually paying off for us.

On macro Sir.

Certainly were not immune to major disruptions second wave issues and so forth.

Thus far we have been quite encouraged.

With the momentum the order strength, we're seeing in all of our verticals, but in particular in service provider and the enterprise in the Q3 timeframe.

I think at this point we're.

Our visibility is good enough to say that in the service provider space. We can see mid single digit decline, though level for the year, which is actually meaningfully better than last year in the enterprise expect to see growth for the full year now based on the momentum and the visibility that we have and cloud provider flat to low.

Single growth is actually very much realistic again, considering the momentum to date as well as our outlook for the rest of the year in Canada.

I would just add to 2021, obviously there is a fair amount of uncertainty, but our current a working assumption is we're presuming no further economic deterioration in the macro environment remains roughly the same in 2021 as it did in 2020, so were not presuming it gets materially worse, nor materially better throughout 2021, that's really our base case assumption right now.

Very good good luck guys. Thanks.

Thank you. Thank you.

Our next question comes from the line.

Small with Goldman Sachs. You May proceed with your question.

Yes. Thank you for the question I have two actually regarding.

Forward sales. So I wanted to ask you what the pipeline is looking like and if you were to gain footprint wins, there, particularly in Europe. What you think the timing on that might be would it be middle of next year with the earlier just kind of curious how that pipeline is developing for it yet.

And then secondly on.

On higher speed NPD line cards, I Wonder could you talk about how far through the upgrade process.

You are out there like how much runway you think you've got in terms of higher speed.

Great. Thanks.

Yes. Thanks for the question is broad so both questions are actually pertaining to our automated wind solutions.

Use cases that we are addressing in the ACX specifically this is a product that addresses our metro.

End to end use cases, we're still in the early stages of completing that solution and what we have is the initial HCS product or the modern product that we just introduced into the market to ACX 710 does actually had very encouraging early momentum.

That coupled with some of our MSR portfolio some of our older HCS product line and very importantly here is the solutions that were gluing together with end to end automation through some of our organic efforts smart partnerships and then very recently our acquisition of net round, which is an.

End to end assurance solution for.

Our service provider customers in particular, I think that's starting to come together and we're starting to see early momentum, but it's still early days and I expect that by the time, we get into next year, probably second half next year, we'll have enough of the solution that we should see a bit more momentum.

On your question around MPC.

It took us quite some time to get the MPC products that we had introduced into the market now a while back.

These are line cards for the MX product line.

Please in terms of the features required for use cases that the majority of our service provider customers were interested in.

That's mostly behind us at this point.

Then there is a certification cycle now we are actually starting to see some decent revenue ramp still early but I expect that to continue to benefit us in the future and in fact some of the.

Optimism, we have about further stabilization in the service provider business as a result of the fact that we have these newer products that we're now selling for our customers.

Do you have any percentage.

Sort of estimate on how far through that revenue opportunity youre on the mpcs roaming or I mean is it is it sort of 10% or is it.

Are you further through it can you give us any idea.

All I will say at this point is that it's still fairly low as a percentage of total amec your business whether its order their revenue is still very low.

Great. Okay. Thank you very much.

Our next question comes from the line of Paul Silverstein with Cowen You May proceed with your question.

Thanks, guys for taking the question.

And can you discuss what you're seeing in terms of pricing in both the service provider and the cloud market and also a broader question for both new in terms of the competitive dynamics that you're seeing.

We're positioning relative to obviously roles with Cisco, but also to deal with motors out there in particular and switching wrist and H.B. I recognize you have to bid market and you are still small part of it soon you may not be coming across the very best that may be less rather than more green and curious what you're seeing.

Then as a follow up.

Yes, I'll touch on the pricing part a pass to Rami from the competitive aspect, but on the pricing front, we're not seeing a material change Paul I mean, as you know the pricing has always been competitive in this industry.

We do see price erosion on a per bit basis year over year, and we're not seeing anything unusual in the pricing for going forward. So really nothing to note from a change perspective on the on the pricing front this quarter nor in our in our future plans.

And just to answer your question Paul about the competitive dynamics I mean, we obviously have always been in a very competitive.

The environment the competitive landscape.

I'd like to think about our competitive differentiation from the UK standpoint. So if you look at the edge of an enterprise were missed this overarching cloud solution that delivers the manageability and assurance so too.

Enterprises, I really am very pleased with our win rate the.

The fact that we have a solution that is highly differentiated that's resonating with many of our customers and especially in a macro environment that is more challenging in the enterprise space, having this kind of differentiation.

Is essentially what is resulting in the momentum that we're seeing in the enterprise was double digit order growth on a year over year basis.

In the second two solutions automated when solutions in particular, which is around so.

Service providers cloud providers, I really think that we have a compelling portfolio of products, especially for the 400 gig space with our network operating system capabilities with Junos evolves and and automation framework that includes things like help us and Northstar SDN controller and now let met round.

That's really coming together nicely metro thats going to fill out in time I just answered that question as you know that's an area, where they're going to be some certain select opportunities that we can compete based on the completeness of our portfolio today, but I feel confident with the investments that we're making now that it's going to become a much.

No easier opportunity for us to capture in time, as we fill out that portfolio.

I'd ready data center the momentum there is really strong again based on the merits of our merchant and custom silicon based products as well as the automation solutions that we offer our customers today that I see will even get stronger in time, but I feel very good all up about the technology that we're offering them.

The customer engagements that we have across all of our segments.

Robert just to be clear you alluded to in your remarks, but the weakness you're citing would cloud that is not too sure loss or duty intercepted deals by your competitors, you're not seeing that.

No that's not what we are seeing this is really just timing of deployments.

Cross a few of our loud the largest cloud provider customers.

And if I look more broadly at our cloud segment into tier two tier three cloud actually the momentum there is quite solid.

Our next question comes from the line of Tommy I agree with Credit Suisse. You May proceed with your question.

Hi, Thank you.

I just wanted to touch up mainly on the quarterly results and just put into perspective. Some of the other results that you guys have reported earlier this year in one Q2 Q just maybe for you get an idea you know you talked about on prior quarterly results. How there were some unfilled opportunities mainly tied to do mainly tied to supply shortages now when we look at.

The Threeq results when we think about the roadmap for Q, how much in Threeq and Fourq catch up from opportunities that were nest and one Q2, Q or just were a bit behind and how much of this is essentially net new or you know I guess you'd say more productive sales generation rather than just like fulfilling orders already in the pipeline I never got executed.

First on bank lending.

Yes. So we're very pleased with the Q3 results from a revenue perspective and from a bookings perspective, we did see significant bookings growth in Q3 and enterprise. We also saw modest bookings growth and service provider in Q3 as well there is some of the revenue, particularly some of the service provider revenue in Q3.

I would say did benefit from the strength in first half bookings the supply constraint still remains elevated on particularly our service better products actually are in Nexstar PGS products are where we're still seeing the most significant supply constraints. We do expect those to moderate here as we as we close out the year. The rest of our portfolio was largely back on track.

Normal lead time, so if you look at the quarterly result in Q3 up from search by respective revenue growth.

The large sequential increase there was some benefit from first half bookings, but but I would note that even Q3 Standalone service about a bookings were up on a year over year basis. So we're seeing pretty broad based momentum I wouldn't I wouldn't over rotate on the first half results of bookings being the reason why we have a strong Q3.

Got it got it. Thank you and then just one quick follow up you are guiding to EPS growth being modestly ahead of topline revenue growth and there are some moving pieces, Oh, hi, Andy I was hoping to get some more color on EPS given margins are essential also.

Slide basically flat in 2021 your operating margin guide does this mean that theres going to be a pronounced buyback taking place in 2021 or is there something you know.

Little bit more.

Something very similar to what you guys have done historically in the quarter in the quarter in the new year.

Yes at this point, we don't have anything specific to talk about on 2021 as it relates to our capital return program other than we will remain consistent with past practices, we will return greater than 50% of our free cash flow to shareholders in the form of dividends and share buybacks, we remain opportunistic.

We don't we don't have a you know an implied large buyback bake into our into our current CNO.

Outlook.

Our next question comes from the line of Hum along with Barclays. Your favorite David Your question.

Thank you yeah, just two if I could.

First maybe Ron if you could talk a little bit about you mentioned good traction for 400 gig switching.

It sounds like a secured a new top 10 customer talks about the timeline of a more significant ramp and maybe some some larger customer wins in that vertical and then secondly, if you could just double click a little bit on the security.

Peace looked a little bit weak in the quarter, it's kind of lagged a little bit. This year. So maybe if you can highlight what's going on there and what it will take to turn that business around into next year. Thank you.

Yes, thanks for the questions Tim I'll address both so and the 400 gig side I have confidence in the technology and there is a lot of new technology that we've introduced into the market here. If you consider new silicon that 400 gig capable new systems that are optimized for 400 gig.

And.

A vastly enhanced operating system that we call Juno Seabold, so that momentum that we're seeing mostly been in the wide area, but we are starting to see some success in the data center and the thing that I'd like the most about this is that it gives us an opportunity to prove out the competitiveness of our product portfolio.

Folio in all of these wins involve some level of competition.

Hardens, our new technology stack and ensures that we are ready for more and more customers.

The opportunity expands timing wise.

I think meaningful revenue will be next year sometime and in particular in the second half of the year.

And then on the security front.

Our business is very tightly aligned to our high end portfolio, Thats, where we have real and.

Pretty high level of differentiation relative to peers in the industry and thats tied to cloud provider and service provider purchases in the service provider space. Many of the security deployments are for Fiveg networks are networks that are gearing up for Fiveg traffic.

So it just so happened that Q3 after a couple of actually solid quarters Q3 was a little bit weaker.

Because of the timing of some of these deployment if I look at the pipeline in particular in the high end.

Looks very solid so I'm actually not too concerned about the performance in Q3.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of some challenging with JP Morgan you May proceed with your question.

Hey, guys. Thanks for taking my question I just wanted to start out by seeing if you could flesh out the organic growth guidance for next year, a bit more by verticals and maybe how you're thinking about the magnitude of growth and Mike kind of look at cloud and enterprise verticals separately and what are you baking in for.

The award wins for example, with Gulf custom was in that outlook.

Hello.

Yeah sure. So while there still are some uncertainties out there we do believe based on the momentum we have in the investments were making that we will return to organic growth next year on a full year basis.

We're comfortable with current street estimates looking for low single digit organic growth in 2021 different.

The vertical perspective, I mean, we expect enterprise and cloud to be growth drivers for us and we expect further stabilization within service provider and as news of all it kind of organic statements clearly the pending acquisition of 120th technologies. As we mentioned last week I should add nearly a point to revenue growth on a full year basis in 2021.

And we expect those trend likely to be stronger in the second half of 2021, if that's still a very much a ramping growth business.

Okay, Oh, and when I think about kind of the stabilization, which is selling more concerned about for the service provider outflow.

Generally broader concern in the investment community that the outlook remains fertile decline on a more structural base is that even if it goes that kind of stabilization can you address that take once you get past, even playing pretty one do you see you bought back to growth for the service provider business.

I think longer term there is a path to growth.

We're not talking about 21 at this point the thing that gives us confidence in our ability to further stabilize the segments, which would of course be improvements to this year and this year with is actually significant improvement to what we saw last year is execution in particular, it's the diversification.

In how we are approaching this market segment.

Diversification from a technology standpoint, where it's not just about selling routing into the wide area. It's also about selling switching for telco cloud data centers as well as security for Fiveg deployment, and then diversification from a customer and yield standpoint. So we took some debts with our account coverage.

Our sales transformation that we took a couple of years ago that is starting to pay off with international momentum in the telco space with accounts that traditionally have not bought much from juniper, if anything at all and we're starting to see some really encouraging momentum in verticals like the cable segment, both here, especially here in.

North America, but also to some extent internationally. So that is a matter of strategy. It's a matter of execution that gives us the confidence in the outlook is limiting I would add is that diversification strategy that Rami mentioned from a service about a prospective it absolutely applies in our other verticals as well, but we are seeing significant diversification in our cloud business.

Both tier twos different logos on the on the Hyperscalers and more use cases as well as obviously enterprise is a very diverse vertical for us going forward. So I think juniper is diversification has absolutely been paying dividends for us year over the last few years.

Great. Thank you.

Thank you. Our next question comes from the line of Simon Leopold with Raymond James You May proceed with your question.

Great. Thank you first I just wanted to maybe get a upgrades clarification on the strength in service provider this quarter how much of this.

Do you consider the catch up from the supply chain issues and how much maybe is coming from the acceptance of the product refreshes like BMX by GE and really what I'm going for is sort of what was catch up versus what's more organic in terms of trends in service provider and then at that.

Longer term follow up.

Yes, so I would say the majority is as Rami mentioned its execution related it's our ability to diversify away from certain tier ones into broader.

Two internationally as well as other verticals like cable. So I really believe execution is the primary driver of our success within service provider. There was a little bit of catch up if you recall Q1, we did miss expectations due to supply constraints that hit us late in the quarter I think that that was about $20 million to $30 million of kind of Miss in Q1 that is probably been spread back.

Into the Q2 in Q3 results at this point I feel pretty good that our supply constrained while still elevated it is we're not losing ground nor nor be necessarily gaining much is relatively consistent particularly on the service provider vertical now the only thing I will add here is just keep in mind, our position among service providers internationally.

We are obviously deployed as many.

Service provider networks across a variety of use cases.

And where we are deploying typically there are empty slots in systems that are ready for upgrade when there are capacity requirements and we are constantly innovating and introducing new line cards like the latest.

MPC line cards for the Ns that offer our customers a very easy inexpensive upgrade path to meet those capacity requirements and that certainly is something that's benefiting us today.

And then I wanted to see if maybe you could elaborate on longer term objectives or your position in the campus environment. If I look at your campus switch share. According to some of the third party, it's bounced around a 2% to 3% range and we certainly have heard.

One more comment the channel checks about improved momentum of brand awareness I.

I guess, what I'm really trying to get at is thinking longer term, where do you want to take this business how.

Whether it's market share revenue objective could you quantify what the longer term plan is around your campus position. Thank you.

Absolutely. So if you look across land.

Wireless Lan and less include win as well enterprise Lan or SD win that's a 20 billion dollar market opportunity and we're actually not interested in that full opportunity. The part of that opportunity that we're interested in is the fastest growing part which is the cloud delivered AI driven.

Opportunity, that's what our AD driven enterprise solution is all about where we want to offer the industry best clients to cloud solution that includes everything from the end user irrespective of whether they are in the office or at home or wherever through their wireless Lan Lan and indeed through the wind to their favorite cloud.

That.

Focus that hyper focus and the investments that we've made on that declines. The cloud solution is what is paying off for US right now within a very high degree of differentiation our objectives in a nutshell is growth is faster than market and thats exactly what we have seen what we've been seeing for.

The last several quarters in terms of longer term aspirations I would just say maybe this would be a little bit of a teaser we'll do an analyst event in the first half of next year and we can provide you with additional color on longer term aspirations, but let's just say that doesn't across come across clearly on this call I'm very excited.

About this opportunity as well as our ability to take share.

Okay I'm looking forward to the event to get the numbers behind that thank you.

You bet.

Our next question comes from the line of Amit Daryanani.

Cory you May proceed with your question.

Yes. Thank you for taking my question two for me as well I guess.

Yes.

So when I think about this low single digit growth organically in calendar 21.

Is there a way to think about it is the grow Tony fairly even through the year is going to be more H, one heavy or not and then to the extent that growth happened is the expectation for that coming from a better macro environment or share gains. It does seem like you guys are picking up more share was not the last few quarters.

Yes, so from a seasonality perspective, I would expect it to be largely similar to this year on an organic basis I do think the acquisition as I mentioned before of 128 technologies will probably be more backend loaded to incremental nearly a point of growth would probably be more back end loaded but from a juniper organic perspective, I don't see the pattern changing much typically be go down obviously from Q4.

Q1, and then we build gradually throughout throughout the year and I expect that to happen next year as well.

I'm sorry, what was the other part of the question.

Some think it with expectations accounting 21 are these more driven by we think the macroeconomy more slowly on better neck or share gains that seem to be helping you. Yeah. So Adam is absolutely about share gains I mean, we're expecting the macro economy to be largely the same as as I mentioned earlier, it's Italian certain however, we feel that the.

Momentum we have in our presumption that the economy remains roughly the same we don't see further deterioration we expect to see organic growth I believe many of our competitors are not going to see organic growth. So I expect us to take share like we have been this year I expect this to continue to take share next year, that's our current bookings assumption.

Okay got it and then if I could just follow up Bob Aiken T. recently talked about the ability to start using white boxes for core routing solutions.

Disaggregating the core correlated if you may.

Data perspective, how do you think of that dynamic and does that expand the competitive landscape landscape in the Colorado market and how does that impact juniper.

Yes, so I'll take that we obviously have a lot of respect for 18 T. They remain a great partner and customer of ours.

Having said that I'll talk about this aggregation and white box more broadly and my perspective year largely has not changed all that much.

You know I look at the architectural side, the technology side of dis aggregation and Juniper is actually already invested quite heavily in dis aggregating our operating system because it gives us a tremendous amount of benefit gives us flexibility gives us the ability to reap the benefits of having merchant silicon offerings and custom silicon or.

Brings uneven offering our routing protocols stacks and so forth on X 86 that is actually something that we've done to the benefits US we've also taken the.

The step of offering some parts of our products, especially in the switching area in a disaggregated forum, where customers can procure our network operating system independently of hardware and quite frankly, the general interest had been weak.

So I think the vast majority of our customers are looking for integrated solutions. They want the openness and that flexibility between software and different hardware types, which we can absolutely offer they want to procure services for the entire stack of technology that includes software and hardware.

And if things were to change in more customers start to ask for some sort of this aggregation as a procurement model will be ready because we've made the.

Investment the only other thing I will I will say is.

We have this aggregated component of our own less our operating system like our routing protocol stack that we call. This for example, CRPD containerized routing protocol demon and Weve offered it as a separate entity and our price list and that kind of this aggregation, we're actually seeing some very.

Robust interest and the deployment models here are all over the place you can put them in servers, you can put them on.

White box switches, but all of this is a net new opportunity for us I don't see this as being cannibalistic in any way they tend to be very different use cases than the kind of use cases that we serve today.

Our next question comes from the line of Aaron Rakers with Wells Fargo. You May proceed with your question.

Yeah. Thanks for taking the question I have two as well I wanted to start first on the 400 gig opportunity I think last quarter you announced your first 400 gig win this quarter you talked about a top 10 cloud customer.

Can you just give us a framework of how much of a pipeline how many wins you've had on the 400 gig, but has there been any priming no change or shift out in your expectations of the materializing revenue contribution.

Last quarter, you you alluded to maybe starting in August and in early 21.

Quickly.

Yes, so in terms of the number when they actually don't have that number right. Now we can look to provide you that number in future quarters or at the analyst event in the first half of next year, but it's growing and in many cases, it's either growing with native 400 getting towards that are being deployed today based on the availability of uptick or customers.

They are buying 400 gig ready products using breakup cables and things of that nature to get 100 gig connectivity today, but with anticipation that they will eventually deployed 400 gig with.

The write off that some I'm honestly quite pleased with.

The rate of growth. This early in the game across both Sps and cloud providers.

In this space and as far as timing I do think coal that has impacted the timing of the 400 gig deployments.

In particular in the cloud provider space, but to some extent some service, but a space as well, but I don't think it's all that significant I mean, I still think that the rent is going to be next year I, just think that the meaningful ramp will be more in the second half of the year.

That's helpful and then as a second question just remind us again of how you see the five g. opportunity as we start to hear horizon talk about their base station deployments really starting to ramp up and obviously, we move into next year I'm, just curious of how how juniper sees it from a core network infrastructure.

Capture side and when that might start to benefit your service provider business.

Yeah, absolutely. So obviously given our position with telco. This is a very interesting dynamic for us and one that we track and one that we're investing in and what it means specifically for juniper three different things one I'd mention is already which is around security our high end security portfolio provides our customers with.

That's perfect.

Cost sales, if you will of performance and efficacy that is really unique in the industry today and has resulted in a number of worldwide service provider wins.

They were certified as are deploying the technology to protect users infrastructure and data in anticipation of Fiveg deployments.

Second is about transport I mean, theres no doubt that if you're going to have faster.

Ran faster radio access network Thats going to result in more bits that need to be carried in fiber optic networks and thats, where we come to play today, it's largely around core and edge and as I mentioned earlier increasingly it's about metro with the portfolio that we are starting to introduce into the market and the third element.

The Fiveg, it's very important to us is the data center.

Because fiveg is inherently going to be a cloud native deployment model, especially with overran and DRAM deployments that are picking up steam in the industry. Those require highly distributed highly automated datacenters and that's that's something where we've already seen some strong momentum.

And with the combination of our fiber portfolio, but then also our software defined networking portfolio Con trail that stitches this solution nicely for our customers.

Yeah.

Operator, we'll take two more questions.

Okay.

Our next question comes from the line of Jeff Cabo with Wolfe Research you May proceed with your question.

Yes. Thank you.

I have two questions for you all and I think one is the cloud growth that you had sketch out for us in 2021.

So flattish to low single digit.

Couldn't be better I mean shouldn't that be better than.

That's really actually knew that make is driving growth there.

Look there's some share gains coming in I, just I feel like that's kind of a low bar and I was hoping that that number might be a little higher. So if you could shed some light on that would be grateful.

And then secondly.

Ken if you Wouldnt mind clarifying on your slide.

EPS growth above.

Above revenues is that inclusive of 128 or is that is that on an organic basis. Thank you.

Yes, let me address the first question and then I'll, let Ken address the second one kick in on the cloud is entirely dependent on the deployments of large hyperscale cloud providers I mean.

Keep in mind that we have a unique position among cloud providers with the footprint that we have that we have and we've preserved and if you recall if you've been tracking us for long enough. A couple of years back we went through a fairly disciplined product transition that is now behind us and the whole idea there was to retain that.

Print so that we can benefit from.

Deployments that are happening and we saw some of that in the first half of this year, but cloud has always been a highly lumpy type of vertical because of the concentrated nature of the customer base on capex expenditures.

Expenditures within that customer base, so I remain optimistic about cloud as a vertical that we focus on.

Long term, but we're doing everything we can and rest is really up to our customers and their deployment pattern.

Yeah and on the EPS front the commentary provided for 2021, where we expect non-GAAP EPS to grow slightly faster than revenue that does include 128 technology, which we mentioned it's about five cents diluted that's our expectation that includes that dilution from 128 technologies.

Okay.

Thank you all very much.

Yes. Thank you.

Our next question comes from the line of metal Marshall with Morgan Stanley. You May proceed with your question.

Great. Thanks, I just wanted to ask a question on product gross margin.

And just kind of the downtick year over year.

I would think with the stronger routing performance that maybe margins would be a little bit better. So is that should we consider some of that weakness just from stronger deployments or just any commentary around gross margin kind of on a year over year price basis would be helpful. Thanks, Yeah. So there's really two two drivers one would be the cobra related costs that we talked about a lot on the last call.

So clearly there was some year on year comp differences in our margin would have been up a full point into juniper aggregate level on the product side only would have been.

Closer to a point and a half increase if it weren't for some of these cobot elevated cost. It's still is down year on year, even if you adjust for that on a product only side and that is a factor of mixing it in to your point, it's not as simple as just looking routing versus switching or service provider versus enterprise, you really have to get down level into what's happening in in making one example, I mentioned is is.

Software advice to the software mix is clearly down year on year, we've talked about that and that's that's that's hurting margins a bit on a year to year basis. There's also just different product mix different customer mix different deal mix. This all factors into our gross margin results. We're pleased with our performance. This year, we expect to grow margin with volume going forward, we expect.

Software mix to become a bigger contributor next year, which will also help gross margin expand on a year over year basis.

Continue to focus on value engineering efforts. So we feel confident about where we are and where we're headed with gross margin.

Got it and then maybe just a follow up you guys have alluded to this but just in terms of some of the enterprise strength that you're seeing how would you characterize that as you know is made the portfolio more is buffer the portfolio you've made the sales investments or just kind of improved buying behavior on part of.

Pardon the customers. It seems is that the sales investment that youre kind of pointing to primarily at least in early days and kind of portfolio kind of in 2021, but just any last commentary there.

Yes, I'd be happy to address that definitely we've made some investments both in go to market.

Sales in particular, but then also in the product portfolio.

I talked a lot about the differentiation and the idea of an enterprise around campus and branch in wide area, but also just emphasize that our innovation is strong in the data center as well and we've seen some real great momentum in the datacenter across not just the enterprise, but also with telco they're all.

Deploying lots of data centers in a distributed fashion to get ready for Fiveg deployments to offer different types of Virtualized services.

We'll go to market and fourth of this strength is the primary driver for our enterprise momentum.

Great. Thanks.

Thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a great rest of your.

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