Q4 2020 Juniper Networks Inc Earnings Call
Greetings and welcome to the Juniper networks fourth quarter and fiscal year 'twenty 'twenty financial results Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Jeff Luber. Thank you, Jeff you may begin.
Thank you operator, good afternoon, and welcome to our fourth quarter 2020 conference call joining.
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 expectation.
<unk> per subject to risks uncertainties and actual results might differ materially.
Richard It's Scott in our most recent 10-Q, the press release and CFO commentary furnished with our 8-K filed today.
And in our other SEC filings.
We're looking statements speak only as of today and Juniper undertakes no obligation to update any forward looking statements.
Our discussion today will include non-GAAP financial results.
Reconciliation information can be found on the Investor Relations section of our website under financial reports.
Commentary on why we consider non-GAAP information a useful view of the company's financial results is included in today's press release.
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 and thank you for joining us on today's call to discuss our Q4 and full year 2020 results I Hope you and your families are well and my thoughts go out to all of those affected by the pandemic.
2020 was an unprecedented year, which presented challenges the none of us could have predicted a year ago. The biggest being the emergence of the global pandemic. This event materially impacted our supply chain the way, we work and collaborate and how we engage with our customers around the world depend on it also impacted the health of our.
Customers employees and people close to us in our personal lives.
Despite these challenges we grew our enterprise business for a fourth consecutive year, we grew our cloud business for a second consecutive year and we made progress stabilizing our service provider business with orders in this vertical growing on a full year basis, even though revenue declined the.
These results were made possible by the efforts of our employees, who have executed exceptionally well and I'd like to give a special thanks to all of them for not only enduring but excelling in the face of the diversity.
We're proud to be one of the keepers of the global Internet and the world needed the internet in 2020 more than ever.
We are exiting 2020, following two consecutive quarters of year over year of growth and entering the new year with good momentum. This is a direct result of the strategic actions we have taken around how we go to market, how we align our business and how we complement our organic business with the thoughtful acquisitions such as net.
Missed that create new revenue streams and pull through sales of our existing products. While these actions should set us up to sustainably grow our business starting this year I'd like to highlight several key areas of strategic focus while we plan to double down in the new year, which you'll hear us talk more about during our upcoming Investor day.
Then on February 12.
First delivering industry, leading customer experiences through superior technology engagement quality and support while we're entering 2021 with the highest customer satisfaction scores, we have ever seen we view customer experience as our true north and are committed to doing even better.
We think delivering superior customer outcomes will enable us to win across all of the markets and verticals we serve.
Second focusing our business on specific use cases, which include the AI driven enterprise cloud ready data centers and automated win with connected security embedded in each of these use cases, each represent a large opportunity that spans across the verticals we serve.
Each of these use cases is likely to see attractive market tailwind over the next several years and focusing our resources on these areas should enable us to accelerate our growth as these opportunities unfold.
As I discussed last quarter, we have reorganized our sales product management and engineering teams around these business opportunities and we will begin disclosing our revenue mix in this format. When we report our Q1 results.
Third capturing the value of presented by our recent acquisitions and making sure 128 technology Astra and net round deliver similar returns on investment to what we're seeing with net which continues to exceed expectations and is positively impacting sales of the broader juniper portfolio I'm.
Very encouraged by the early customer interest in each of these transactions, which is building confidence these businesses will positively impact our performance in the future.
We firmly believe we are taking share and that the deliberate actions we've taken along with some of the investments we have made should position us to not only capitalize on the big market opportunities such as 400 gig and five G that will unfold over the next few years, but also to see broader market success the decrease.
It is our sensitivity to macro trends.
We believe our plans will enable us to emerge from the pandemic stronger than we entered and deliver sustainable top and bottom line growth over the next several years, even if end market conditions remain challenged.
Now I'd like to provide some additional insights into the quarter and address some of the key developments, we are seeing within each of our core market verticals.
Starting with the enterprise, we delivered record revenue in the December quarter, and experienced high single digit order growth year over year, which exceeded our own expectations.
While we saw particularly strong demand in the North American market strength was broad based across geographies and we secured a significant multi year opportunity with an international global 10 accounts for our wireless wired in SD Wan portfolio, driven by our mist AI differentiation.
Based on our results. We believe we are taking share and that our enterprise business is likely to be our fastest growth vertical in 2021.
Our optimism is fueled by the building customer response to our AI driven enterprise offerings and specifically the momentum we are seeing around the mist, which saw new logos grow by more than 125% year over year and orders increased by nearly 140% year over year.
In addition to robust wireless growth driven by mist AI, we experienced strong adoption of our wired assurance capabilities and record pull through of our E X switching portfolio.
In total our current missed the five business of the mist wireless Lan Wired assurance marvelous virtual network assistant and associated export through generated more than the $150 million worth of revenue in 2020, and we expect to materially grow this business over the next few years.
We would also remind you that mist is a software subscription business with 30% to 35% of each deal recognized badly generating a healthy deferred revenue stream, which will be recognized in the future.
The Mrs Technology is truly unique and deliberate a compelling solution for AI driven client the cloud operation not only does our solution minimized it cost with the proactive automation and self driving action, but it assures secure user experiences with end to end service levels and AI driven support this.
<unk> first focus is resonating in the market and is one of the reasons Gartner recently positioned us in the leaders quadrant for wired and wireless access where we were named the leader of the leaders in terms of the ability to execute.
The acquisition of 120th Technology represents the next evolution of our AI driven enterprise vision, 120th technology will not only enable juniper to provide a superior application and user of where SD Wan experience as compared to all other SD Wan offerings in the market, but also to extend the value of mis.
Secure AI engine and cloud management capabilities from client to cloud.
Our service provider segment also exceeded our expectations in Q4, and we have been encouraged to see this business begin to stabilize in 2020 following several difficult here.
The improved service provider of results, we delivered both in Q4 and for the full year 2020 are due in large part to the deliberate diversification efforts, we have undertaken which was enabled us to overcome weak spending trends at several of our large U S. Tier one customers. We believe the strength we are seeing with you.
Cable operators and international carrier is likely to continue through the upcoming year and we remain optimistic regarding our ability to capture more switching and security opportunities within the service provider vertical in addition to core and edge routing deployments.
Not to be overlooked we remain optimistic regarding the access aggregation and metro of routing opportunities, which in aggregate represent a 2 billion dollar portion of the market that is growing and where juniper. Historically hasnt played we introduced our first product targeting this opportunity during the second half of this past year and.
The plan to introduce additional solutions through the course of 2021.
Early interest in our Metro offerings is encouraging and we believe the combination of these products with net ground software automation capabilities should present, a compelling value proposition that enabled us to win in this attractive portion of the market.
Based on our current pipeline, we remain confident in our ability to further stabilize our service provider business during the upcoming year. Despite the ongoing challenges facing many of our customers in this vertical.
Our cloud business also exceeded our expectations in Q4 and grew on a full year basis for a second consecutive year. Despite an anticipated decline in spending by what has historically been our largest cloud customer we have been able to achieve this growth through improved momentum with other hyperscale accounts and.
<unk> success with our tier two customers, which we plan to call cloud majors going forward.
Our hyperscale pipeline remains healthy and we continue to see strong wide area of momentum with these important customers, particularly for our routing solutions, which experienced strong growth from both a revenue and an orders perspective during the most recent quarter.
While the business with these customers is likely to remain lumpy, especially as the old projects complete and new projects ramp up the funnel of new high value opportunities. We have been seeing in this footprint continues to exceed the headwinds. We also see from old projects completing.
The value of our routing stack remains critical to these customers and some of the innovations we have been delivering and software around the Sonic and containerized routing are opening up new use cases, the expand our Tam and will further increase the value of our technology to this critical customer set.
Importantly, we also remain optimistic regarding our potential to gain share with the cloud majors, which we view as the large and growing market opportunity or potential here is not only driven by the strength of our portfolio of napster will further enhance our position, but this is also an area, where we see opportunities to diverse.
The five by gaining share within existing accounts and opening up new logos through an incremental go to market effort.
Based on our current pipeline and the momentum we are seeing at both Hyperscale and cloud majors I expect us to grow our cloud business in 2021.
Importantly, we're continuing to make progress on 400 gig and currently have more than 100 wins for our for them the big capable products.
While many of our wins are addressing wide area of use cases, where we have historically been strong. We're also seeing an increased level of success in data center switching opportunities.
We continue to expand their 400 gig products set and delivered new features needed to gain share in this critical market opportunity. We believe we have the right products and customer engagement to both protect our wide area footprint and capture switching share at the 400 gig cycle unfolds across our cloud and carrier customers. Starting later this.
Year.
On this last point I'd like to spend a few minutes on the abstract which has the potential to accelerate our success in the data center switching market, both within the cloud majors and large enterprise accounts.
Fabric management is a key determinant of success in many of these opportunities and Astra not only provides us with the leadership here, but also in the area of closed loop assurance, which allows customers to quickly troubleshoot and remediate problems in large data center environments.
We believe astra's capabilities are highly differentiated and offer customers. The industry's best day Zero day, one and day two automated operations. We think these abilities have the potential to significantly improve customer experience and accelerate the momentum in our data center switching business, both in cloud majors as well.
All of those large enterprise environments.
Our software business performed well in Q4 and accounted for 12% of our overall sales as a company we remain laser focused on capturing more software and in particular more SaaS and subscription based software.
While the high values SaaS and subscription software are smaller percentage of our overall software revenue stream today. They are growing rapidly which is the trend. We expect to continue over the next several years. This growth is primarily being driven by the strong adoption of our cloud as well as other software based subscription offerings the.
Recent acquisitions of 120 technology net rounds, and Astra will further accelerate our efforts to capture more software revenue in the years to come.
I'd like to mention that our services team delivered another solid quarter and on a full year basis 2020 was another year of service revenue growth due to strong renewal and attach rates as well as growth in our SaaS and software subscriptions.
Our services team continues to execute extremely well and ensure our customers receive an excellent experience.
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 detail.
Thank you Rami and good afternoon, everyone on.
I'll start by discussing our fourth quarter results and then cover for the fiscal year 2020, and end with some color on our outlook.
We ended the fourth quarter of 2020 at $1 billion $223 million in revenue and non-GAAP earnings per share of 50 parts of that.
Both above the midpoint of guidance.
Revenue grew 1%, which was the second consecutive quarter of year over year growth.
The higher the midpoint results were driven by strength across all verticals.
Looking at our revenue by vertical on a year over year basis enterprise posted a record quarter growing 7% year over year and 14% sequentially.
Cloud grew slightly year over year and increased 11% sequentially.
Service provider declined 4% year over year and was essentially flat sequentially.
On the technology perspective routing of increased 9% year over year and grew 7% sequentially.
Witching decreased 2% year over year and increased 14% sequentially.
Security decreased 14% year over year and grew 19% sequentially or.
Our services business.
Decreased 1% year over year and increased 2% sequentially.
Software revenue was approximately 12% of total revenue in the fourth quarter.
Non-GAAP gross margin was 60.0% in the quarter.
Which was in line with our expectations.
In reviewing our top 10 customers for the quarter three of our cloud six for service provider and one was in enterprise.
Our top 10 customers accounts for 30% of our total revenue as compared to 33% in the fourth quarter last year.
Product deferred revenue was $105 million up 5% sequentially and down 21 per cent year over year due to the timing of the delivery of contractual commitments.
Deferred revenue related to our software as a service and software subscription offerings, which grew year over year are included in our services deferred revenue.
Non-GAAP operating expenses increased 2% year over year and 4% sequentially.
The higher than anticipated costs were driven by higher variable compensation, mostly on the go to market organization as a result of higher revenue.
Well as of the acquisition of 128 technology.
Cash flow from operations was $126 million for the quarter and increased both year over year and sequentially.
We paid $66 million on dividends, reflecting a quarterly dividend of <unk> 20 per share.
We also repurchased $75 million worth of shares.
Total cash cash equivalents and investments at the end of the fourth quarter of 2020 was $2 4 billion.
I would like to point out that there was the timing difference between our new debt issuance in the fall of retirement of the previous debt, which was completed in January.
As a result of this timing difference our total cash and debt balances are elevated by approximately $485 million and $425 million, respectively as of year end.
Moving on to our full year results.
Total revenue for 2021 4 billion for $145 million, which was flat versus 2019.
Our enterprise business grew 3% for the year. Despite the impact of the pandemic. This was our fourth consecutive year of full year growth in enterprise.
Our cloud business grew 2% for the year, the second consecutive year of growth.
Our service provider business began to stabilize and performed as expected declining 4% for the for year.
Looking at our technologies routing declined 1% switching grew 2% and security of declined 9% year over year.
Our services business grew 1%.
Software was 10 per cent of total revenue the second year of software being at or above this level.
In reviewing our top 10 customers for the year fiber cloud for all of our service provider and one was on enterprise.
Non-GAAP gross margin declined by 90 basis points in 2020, primarily due to the additional logistics and the other supply chain related costs related to COVID-19, partially offset by an improvement in our service gross margin.
Throughout the year, we continue to focus on disciplined operating expense management, the modest increase of less than 1% on the non-GAAP basis non.
Non-GAAP operating expense as a percentage of revenue was 43, 7%.
Non-GAAP diluted earnings per share what the dollar 55 and 2020.
For the year, we had cash flow from operations of $612 million, which increased $83 million compared to 2019.
During 2020, we took a balanced approach to capital allocation.
We repurchased $375 million worth of shares and paid $264 million of dividends for a total capital return of 125 per cent of free cash flow to shareholders.
In addition, we acquired two growth oriented companies that we believe will help us return to sustainable revenue growth and margin expansion over time.
We also improved our capital structure by refinancing a portion of our debt locking in historically low long term financing rates and extending our average maturity, while preserving our investment grade credit profile.
I am proud of the strategic approach the team has taken to ensure our financial resilience through these challenging and uncertain times.
Now I'd like to provide some color on our guidance, which you can find detailed in the CFO commentary available on our Investor Relations website.
At the midpoint of our revenue guidance revenue is expected to be up 6% year over year, which includes less than $10 million from our recent acquisitions.
We expect non-GAAP gross margin to experience normal seasonal patterns in the first quarter exclude.
Excluding the anticipated impact of increased Covid related costs non-GAAP gross margin would be approximately flat versus the first quarter of last year.
We expect first quarter non-GAAP operating expense to increase sequentially, primarily due to the inclusion of approximately $20 million of operating expenses related to the recent acquisition as well as the annual reset of variable compensation and the typical seasonal increase in fringe costs, partially offset by a decline in commission expense.
In addition, our first quarter non-GAAP EPS guidance includes the dilutive impact of the recent acquisitions.
Before we move on to Q&A I would like to provide some comments on our expectations for the full year 2021.
Our 2021 revenue and non-GAAP earnings expectations remain unchanged relative to the forecast we provided during our Q3 of 2020 earnings call.
However, we have updated our growth expectations to account for the revenue and the non-GAAP earnings upside that we experienced in Q4, 'twenty 'twenty as compared to the midpoint of our guidance.
We have also factored in the acquisition of abstract which is expected to be dilutive to our non-GAAP earnings during the first half of 2021, but the breakeven on a full year basis.
In terms of the full year revenue, we expect organic growth of approximately 2% to 3% and we anticipate an additional 1% of growth from the recent acquisitions.
Beyond the first quarter, we expect revenue to grow sequentially each quarter in 2021.
While non-GAAP gross margin can be difficult to predict we expect full year gross margin of approximately 60% due to the higher volume reduced COVID-19 related logistics costs and higher software mix as well as improved service costs.
Through the course of the year, we expect non-GAAP gross margin to improve with volume.
Non-GAAP operating expense is expected to remain near first quarter levels through the course of the year.
The full year non-GAAP operating margin is expected to be approximately flat to 2020 levels.
While we expect total non-GAAP operating expense to be up on a full year basis as we absorb our recent acquisitions and the best to take advantage of market opportunities. We remain committed to disciplined expense management and expanding operating margin longer term.
I'd also like to note that we expect non-GAAP other income and expense to remain near first quarter levels through the course of the year.
Our non-GAAP tax rate on worldwide earnings is expected to be 19, 5% plus or minus 1%.
We expect full year, non-GAAP EPS to grow faster than revenue.
Finally, our board of directors has declared a quarterly cash dividend of <unk> 20 per share to be paid this quarter to stockholders of record.
In closing I would like to thank our team for their continued dedication and commitment of juniper success, especially in this challenging environment.
Now I'd like to open the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is on the question queue. You May Press Star two if you would like to remove your question from the queue for.
Participants using speaker equipment and may be necessary to pick up of your handset before pressing the star keys one.
One moment, please while we poll for questions.
Thank you. Our first question comes from Simon Leopold with Raymond James. Please proceed with your question.
Thanks for taking the the question.
Wanted to just get sort of a very simple one out of the way I appreciate the commentary on the full year.
One of the the trends that we assume would occur would be expenses rising in the second half of the year with some normalization and catch up post the pandemic I'm thinking about things like travel expenses coming back.
Wondering how you're thinking about.
Of those kind of expenses coming back if it's something you're assuming happens in 2022, rather than later this year and then I've got a bigger picture question afterwards.
Sure. Thank you Simon so for Q1 of the primary driver of the sequential growth in Opex for Q1 guide at five to 10 really is the acquisitions that we recently closed and that's about $20 million of Opex in our Q1 number we expect for the rest of the year to roughly maintain those Q1 levels around five to 10, plus or minus a bit we do anticipate there being some <unk>.
Coming back into the into the end of the equation when people start to travel again et cetera, perhaps in the second half. However, I do think the new normal is still yet to be determined and at this point I'm not expecting a yes.
All of the cost to come back I think we'll be able to be conservative and basically efficient with our travel et cetera, as we move forward. So although I do expect some COVID-19 cost to come back we don't have a large amount baked into our current full year forecast at this time.
Thanks for that and then in terms of the the trend it seems pretty clear that the the enterprise market vertical will become your largest by the end of of 'twenty 'twenty, one and doing business in that space is just very different than junipers routes. So clearly you've done something different to get here, but could you.
Talk about how this has affected the the thinking on the long term multiyear strategy and the profile of maybe the the company's culture go to market. Thanks.
Yes, I'm happy to address that Simon. So this would be 2020 would be our fourth consecutive year of growth in the enterprise vertical. So this is not a new thing for US. However, I do believe that there had been a number of strategic actions that we've taken over the last few years.
On equipping sales on structuring sales in a way that goes after the enterprise effectively and efficiently.
Organic innovation or inorganic acquisitions have set us up to accelerate this part of our business. So despite the challenges that we saw in 2020 as a result of Covid. We grew this vertical and we grew it nicely I think we're taking share.
I believe our technology and our differentiation has never been stronger.
We've created not just of.
Market share growth and business growth, but mind share growth in the industry and I think we've done so with an eye on doing it as efficiently as possible by focusing on the large enterprises. So a big component of our success comes from large fortune 500, global 1000 accounts, where the sales.
The investments as efficient of the can be for the enterprise. So for all of these reasons I honestly I've never felt better about our opportunity in the enterprise space.
Yeah.
Thank you very much for that.
You bet.
Yeah.
Thank you. Our next question comes from Paul Silverstein with Cowen. Please proceed with your question.
I appreciate your questions.
First of all Ken.
In terms of the supply constraints, how large of new shoe.
Is it advantage vis vis the scope given the for large volume with the Broadcom and other suppliers or is that just not an issue in terms of both revenue growth and pricing.
Picture follow up question.
Yes, so we clearly did experienced some pretty significant supply constraints in the peak of kind of the Covid pandemic. If you will kind of in the summer months, we have seen.
The material improvement since then I would I would articulate that as we exited the year, we're pretty much back to normal we might have some elevated lead times here and there, but that's more due to demand being beyond our expectation and then true supply constraints I'm very pleased with how the team is really adapted and improve the supply of as we as the.
We proceed that said backlog is higher we're exiting the year with about 20% more backlog than we entered so we are maintaining healthy backlog.
Moving into this year in 2021.
And really the supply constrained extended lead times et cetera that we saw through most of the summer months are largely behind us at this point I don't believe we're at a competitive disadvantage of our team does a great job with components manufacturing and component suppliers to negotiate the supply that we need.
Alright.
Moving on I hate to ask you the sequencing of the Astral every quarter. So my apologies, but I think it's been an investor concern for a while.
Sure.
Have you seen any share losses for the early signs of awards of wave from you specifically in cloud for the GCI and the wind routing or switching use cases.
And on the other side of the equation Rami to your comments about ongoing optimism of the cloud any incremental and so you can give in terms of where's the opportunity for the greatest upside.
Certainly Paul So the short answer to your question is no we have not lost share or footprint in cloud routing today, I mean cloud period I should say.
We saw our routing up double digit year over year in the Q4 timeframe.
I think that is an indication of the health of the footprint that we have retained in this extremely important vertical for us.
We continue to see healthy diversification within cloud.
Within the Hyperscale cloud providers, where we enjoy footprint across practically all of them, but also among the from what we used to call. It tier two tier three which we're now calling cloud major is going forward.
More and more market share in that area as well.
Also think that there are the greater diversity of technology that we're selling so it's not just about routing. It's also about switching it's also about security in the very important vertical as I look out into 2021 I believe.
Our footprint that we retain within the cloud space is going to work for US right. We didn't anticipate any major additional share taking thats going to happen in 2021 to achieve the growth that we believe that we can achieve in 'twenty, one, but I do think the with the right focus and go to market the technology.
I know we have that I know is very competitive we can in fact take some additional share as well in this vertical.
I appreciate it thanks Scott.
You bet its Paul.
Okay.
Thank you. Our next question comes from Tim Long with Barclays. Please proceed with your question.
Thank you.
Two if I could as well first.
Maybe rami talk a little bit about the enterprise side, you mentioned a lot of really good cross selling with mist seems to be doing very well could you talk a little bit of out kind of win rates deal sizes and kind of how do you get more.
That's out of that business to keep the ball rolling.
And then second you talked obviously theres a bunch of other acquisitions can you frame for us the size of them could.
Could you talk a little bit about the the three of them and how.
How easy it is going to be for the sales force to engage with those.
And potentially make one two or all of them.
Have a similar type of impact and ramp.
That that mist is having on the company. Thank you.
Yes, it's great question, Tim Thank you.
Just a couple of data points for you to give you an indication of just how well we're doing with mist our annualized order.
Business for mist, Standalone in Q4 exceeded $200 million.
And if you include mist wireless and wired. So this is yes, thats sold really under the mist automation framework on a stand alone annualized order basis, it's really around $300 million already.
So the momentum has been really amazing.
We're going to take the playbook that we implemented and getting our sellers.
Very proficient and being able to position the the mist differentiation the technology and apply that exact same playbook to the acquisitions that we've made last year's $1 28, an abstract in particular, which are.
Mostly suited for the enterprise, but have applicability in other verticals as well.
With 128, it is a really unique differentiated SD Wan solution.
The fifth beautifully under the mist client to cloud vision right, where you are extracting data insight telemetry from everything in the path between client the cloud and Youre doing something really interesting with that data, which is to provide insights and improve the automation and improved end user experience for our customers Astra.
Takes.
This experienced first networking approach that we know has worked so effectively in the campus and client the cloud and applied it to the data center. So honestly early interest in abstract although we just closed the deal yesterday has been.
The <unk> exceeded our expectations at this point the pipeline we're building the interest in customers. The one I understand the better together story had.
It had been extremely encouraging.
And then the last acquisition that is a little bit on the.
A smaller one which is net round and net round has applicability to all verticals, but especially the service provider vertical where we have an ability now to sell beyond just the box and connectivity between boxes and assured experienced assured SLA to service providers and we're also very pleased with the early interest from <unk>.
In the technology as well.
Yeah and on the enterprise kind of customer acquisition question, Tim I mean, we did mentioned and Rami. His prepared remarks that we did see of 125 per cent increase of new though was for mist I would tell you that a good percentage of those logos are existing juniper install based customers are really leveraging our installed base with with the growth asset of mist is very much part of the strategy to accelerate the mis growth but.
Also a good percentage of those customers are net new to juniper. So really there was in Atlanta land and expand opportunity, where we might leave with the mist in the mist AI engine and then expand to the rest of the portfolio. So we're really excited about of the enterprise momentum, we're seeing on from a customer acquisition perspective.
Oh, great. Okay, great. Thank you guys.
Thanks, Tim.
Thank you. Our next question comes from Cemig Chatterji with J P. Morgan. Please proceed with your question.
Hi, Thanks for taking the question I mean, I think you mentioned in your prepared remarks of the stabilization of the service provider spending, but I think you mentioned the telco.
The U S. Telco spending has been weak, but as you kind of seeing strength with the keeping.
Oh gosh the moves can you just kind of talk.
Talk about how long do you think this weakness from U S service for Wayne.
The use of its going to kind of continue.
The new then what kind of impact maybe some of these auctions going on in the U S sort of having on spending kind of of.
Yes.
Yes, I'd be happy to meet you.
We're very pleased with our results in SP.
The Europe largely played out as expected.
The revenue standpoint, Q4, probably exceeded our expectations by a bit.
We enjoy very strong healthy franchises with service providers around the World you know 49 of the top 50 service providers worldwide are our customers Trust Juniper technology.
We did see weakness in some of the largest.
Tier one service providers, especially here in North America, and I think for the reason that we all know there has been a lot of capital expenditure of that has been placed in.
On spectrum auctions and so forth so.
Diverted investment away from the areas of the of the bit of the network. The business that we are traditionally strong in.
On.
I don't expect that to be the case forever. If you look out into 'twenty, one and we provided an outlook of further stabilization I, even better results than we saw in 2020 in 'twenty. One we did not in the outlook anticipate a resumption of any significant resumption in spending by our <unk>.
Large tier one Sps.
They do resume spending and the kind of IP technology that we develop and so then I think that would obviously benefit of our business even more the strength that we saw it has to do with the diversification strategy that we have been executing on.
The increased.
Increased penetration in the cable space in this country to tier two and tier three service providers that are working very effectively for us and international service providers Youll notice that we had a very healthy quarter in Asia Pacific I am very proud of the team in APAC for really showing results not just in SP, but.
All verticals and that's just an indication of the kind of diversification, we are driving through our business.
Got it.
I had a follow up on the 400 gig.
The state you talked about I think you said you have hundreds of wins and most of the minimum the win.
There's a portion of them.
The data center switching as well.
Just kind of.
Talk about how many of the switching wins.
You already had that position in the data center with the customer versus kind of a new wins when you displace the incumbent alerts of new Skus, that's kind of come up and you minus you'll gain of position, there, which is kind of an incremental opportunity.
Yes.
Cloud provider data center switching.
Many wins are going to be mostly around net new share for us because thats, where our existing share as not all of that high.
You know I don't know the exact split of the business that you are asking for but I'll give you this data point.
If you look at the foundation of 400 gig.
Business today and measured in the number of customers in the Q3 of 2020 timeframe, our cumulative number of customers that invested in 400 gig capable switching technology and compare that to the Q4 timeframe same metric cumulative number of customers that invested in 400 gig switches.
<unk> technology.
That's doubled.
So, whereas the revenue from 400 400 gig switching today is still relatively small in comparison to the total.
Switching business the way, we measure it is momentum and wins and the momentum in customers and you can see that that momentum is quite solid thats, a very encouraging data point for us.
Interest. Thank you thanks for taking my questions.
My pleasure.
Okay.
Thank you. Our next question comes from Rob Hall with Goldman Sachs. Please proceed with your question.
Yeah, Hi, guys. Thanks for the question I had a couple of quick number of clarification.
A question on the products. So on the on the numbers can you said, 2% to 3% growth and then 1% for acquisitions does that 1% on top of the two to three years and included.
Yes that would be the question. So the IP on top of so we expect that in aggregate.
3% to 4% of total.
Right. Okay, that's what I thought and then on the gross margin you said, excluding COVID-19 costs I'm, assuming COVID-19 costs. There would be just a few tenths of a percent, but could you just confirm that that's the case on.
The COVID-19 costs of running between 50, and 100 basis points on any given quarter. So it's fair to the material impact to our past few quarters and I expect it to be similar in Q1, I do think that should come down a bit and maybe the second half, but the first half I expect it to be remain on that 50 to 100 basis points of.
Okay. So if we add 50 to 100 back to account for the Covid costs.
Yes, once we once the once the cost normalize that's what that's what we.
We'd expect to see yes.
Okay.
And then on the products I just wanted to check on missed again Rami. The I guess the thing that we get back from.
Investors quite a bit.
This.
It's hard for people to believe that the.
The campus networking oriented products like that are going to continue to do well as we reopen I think of lot of people think gosh why would people invest in their campus networking and I know there's reasons for that.
The money that you don't have a lot of market share there and theres a lots of go for but could you just kind of help maybe for the for the broader audience help us all understand kind of what's going through customers minds. When they think about investing in that in the in the kind of of reopening environment, an environment, where maybe more people are working from home long term net.
Sort of thing. Thanks, Yes, certainly it's actually a great question, Rob So in the way that we've maintained our momentum throughout the pandemic has on focusing on sub segments of the enterprise and of course cloud and SP, but primarily in the enterprise that are most resilient too.
Economic perturbations on spending patterns.
Yes.
So financial services higher education, So think hear college campuses U.
U S federal government large big box type retailers warehouses.
These are all areas where investments in it and networking.
Must be made today, but as we look out beyond the pandemic and you start to think about what happens when we recover from the pandemic. My strong belief is that there will be a pivot towards investments in technology, that's going to be cloud delivered AI.
It's not going to be the complex legacy on Prem traditional technologies that quite frankly are not important to juniper and not a part of our strategy. It's the cloud delivered technology that I think will actually see an acceleration as you get out of this COVID-19 crisis. So my view is we've done what's.
Barry to capture share during the pandemic and we're setting ourselves up with the strategy that's going to be geared towards the investments are going to be greatest post pandemic.
So you would be thinking that people are investing to give themselves more resiliency more workforce flexibility of that kind of thing as they think through the the other side of the pandemic.
Absolutely whether it is because they need the flexibility or because they want to crush the costs of running networks by replacing the human elements of running networks with automation and that is the magic of mist and again don't think of mist is just wireless Lan missed is that cloud delivered.
AI powered automation framework for wireless wired and now with one of technology when that full clients the cloud experience.
Okay. That's great. Thank you Rami.
My pleasure.
Thank you. Our next question comes from Jeff <unk> with Wolfe Research. Please proceed with your question.
Yes. Thank you I guess my first question is about.
Cloud.
And I guess I'm wondering are there opportunities for you to do better than that.
Sure.
Our growth.
<unk> that you gave for the year and I say that on the context of you know we had a couple of tough years in cloud as you I'm sure no better than.
And I do.
We've had now a couple of decent year zone clouds on the flattish or up some but.
But at the same time, we see these cloud companies are growing the revenues on expanding their capex and building the data centers on a faster clip than what your revenues are doing and so I'm wondering if there's an opportunity here, whether it's 21 or 22 for down the road to kind of close the gap a little bit.
And my club more sustainable mid or even high single digit grower.
Yes, yes, so Jeff it's a good question. So we've seen two years of growth in cloud.
When we when we provide our outlook for 'twenty, one we're not assuming any major take share of type opportunities that we score that would accelerate beyond just the statement of growth I mean, that's really the thing that I would ask you to take note of if there were 400 gig.
<unk> that would represent major like net new footprint and certainly that would be additive and I will say this I mean, we do see those opportunities and we are absolutely sleeves are rolled up and we're aggressively fighting for them and actually I feel good about them, but we're not yet at a point, where we want to call them in our outlook for 'twenty one.
Okay Alright.
Alright.
And then secondly.
Just to follow up on <unk> question a bit.
How do you feel like your enterprise customers are now.
For receiving their willingness to invest.
I think of recycled back a quarter or two.
These are the different companies will talk about well they are doing digital transformation on the orange usually not now it starts to the.
It feels like the look back where are we in the recovery.
The spending zone.
Are we fully back yet or is there more as the opportunity for acceleration from here.
So I don't think were fully back yet.
Still believe that there are COVID-19 related headwinds.
That we were facing and we're anticipating that we will continue to face in fact, I strongly believe that our enterprise business would have performed even better in 2020 had it not been for Covid.
We're not in our outlook for enterprise accounting on the major recovery of significant recovery from Covid type spending in enterprise, but should that should that reverse let's say in the second half of the year enterprises to go back to spending more of like the used to then I think we will absolutely benefit from that.
As far as your question there on the appetite for spending in those verticals that I, just mentioned to Rob financial services campuses higher education Federal government.
Large retailers actually of the appetite for investments.
As measured by large projects.
Or is there we've seen it and we won.
Any opportunities based on the merits of the differentiation of our technology and the.
The last thing I would say is even in the let's say the the smaller type enterprises, let's say mid size enterprises.
Where COVID-19 is going to be more of a headwind more of a factor to be considered in it.
Teams justifying projects.
I would argue that we're out of where in the living.
The living at the time, now where differentiation matters, most right and I have never felt more strongly about the merits of our technology of the differentiation of our solution for the enterprise.
Okay.
Okay. Thank you Rami.
You bet.
Yes.
Thank you. Our next question comes from Sami Badri with Credit Suisse. Please proceed with your question.
Hi, Thank you for the question.
The first question is more of a timing and clarification on one of your cloud comments Rami you mentioned that you are completing some projects and then you were seeing the commencement of other projects I just wanted to get an idea on some of the seasonality or just the timing of some of these are we seeing things kind of wine.
The down right now, which means that things could be kind of slow for a quarter or two in the cloud segment, and then could be potentially ramp back up very quickly and say the back half of 2021 is there anything we should be expecting in kind of like the lumpiness and timing of tiny one cloud revenue.
Yes, yes, I'm happy to answer that Sami so.
First I wouldn't say seasonality because it sort of indicates maybe some timing of orders thats based on.
Which quarter of the year and that's not necessarily what we're seeing what we see within the cloud vertical or really two dynamics. One of them is a natural evolution of the deployment of use cases, so they're always going to be older more mature use cases that start to sort of diminish.
Of.
Reduced overtime, but but.
Offsetting those older used cases with new use cases, the we continue to win even within the same customer so any cloud provider, especially of Hyperscale cloud provider is going to be deploying our technology in a number of different use cases in that natural evolution of use cases, it's always been there.
Some will.
The decline in others, we'll grow the second factor within the cloud vertical is just diversity within.
Among customers we're seeing.
Really healthy diversity, among our largest hyperscale cloud customers and net offset some of the puts and takes of use cases within each of the customers and we're seeing strength in the.
The cloud majors opportunity, where there are many customers. So that naturally this is going to be more diverse.
Element of our business.
Yes.
Yes.
Got it.
The kind of lock on here.
In the first half of 2021.
Should be relatively like no real surprises or should we be kind of expecting lumpiness or anything like that just so I can frame out of the year a little bit.
No we're not anticipating any surprises I mean like I said when we provide.
Outlook of growth in cloud.
We're.
Totally factoring in this transition of use cases in our business.
And we're also of.
Of course, taking into.
Accounts that.
<unk> got a diversity of customers and we're not counting on any major net new footprint wins.
Yeah.
Got it got it.
I want to say thank you for that I, just wanted to shift gears, a little bit back to something that wasn't big dynamic about two years ago. The amex. The Pts transition this hasnt really come up much.
As of recently operator, we are we have to move on to our next question.
Okay, Okay got it.
Thank you. Our next question comes from David <unk> with UBS. Please proceed with your question.
Great. Thanks, guys just wanted to circle back on the enterprise for a second clearly, it's becoming a critical driver of the company going forward.
On the recent M&A Fleury has been really focused on that segment and just wanted to touch on.
How do you think about the portfolio today going forward and where or if there are any white spaces that you need to address going forward to really solidify out that market.
Going forward and then I just have a quick follow up question.
Yes, thanks for the question David.
Really do think that we've rounded out our portfolio and our position our solutions for each of our three really important use cases.
I don't think there are any glaring gaps at this point in time, we're always going to be looking for opportunities for value enhancing M&A, but quite frankly, where my mind you that right now where my focus is on landing and integrating successfully in achieving the kind of business momentum and success that we saw with mist.
Two of these acquisitions that we made last year.
Great and just a quick follow up on all of the M&A activity I think last quarter. You mentioned post the closing of 128, you would expect about a point of growth. This year in 2021 from that transaction in your commentary certainly sounds like the receptiveness or the enthusiasm around the <unk> gotten clearly ahead of your expectations does that.
Yes that sort of the expectation from the M&A perspective that you outlined today, probably is a little bit conservative given sort of the the initial client feedback from the transactions that you've completed.
Yeah. So we did we did tweak the language of little bit there, David we talked about being near the appoint of growth. We thought that the 128 tech and net rounds of give us near the point of growth. We're now updating it to we do expect a full point of growth from our recent acquisition. So its a modest change in our outlook there.
Got it that's helpful. Thanks, Ken.
Operator, we'll take two more questions.
Okay. Our next question comes from Aaron Rakers with Wells Fargo. Please proceed with your question.
Yeah.
Aaron Rakers. Your line is live you May proceed with your question.
All right I mean, we can go to come back from the Alex Henderson with Needham. Please proceed with your question.
Great. Thank you very much.
So I was hoping you could talk a little bit about the spending patterns that you're seeing from enterprise customers.
Not so much driven by COVID-19, but rather by the impact of the solar wind tact. We've spent a fair amount of time talking to value added resellers doing the survey work and the like.
As well as talking to the individual companies and it seems quite clear of that spending intentions.
On security of Ratchet up quite significantly.
And that the overall it budgets are also increasing quite meaningfully.
Which does not really put to your commentary about.
Fairly.
Soft conditions on spending potentially improving once COVID-19 is resolved.
Have you had conversations with the.
C suite types in the.
The large accounts.
Even the intermediate size accounts.
That our recent enough to get a handle on whether it's solar wind has had an impact on spending intentions and while you're on it did did you have any impact on.
As a result of of the Hawk.
Yes, so the.
For a few think theres the unpacked first I want to say actually what I mentioned was we anticipate.
Enterprise spending to be healthy post COVID-19. So I actually think that there will be of resumption in spend in <unk>.
More tailwind.
An acceleration if you will of enterprise spending.
On many different use cases, especially of the use cases that we of the company are focused on net.
I was when I say with respect to juniper and impact of solar winds we never.
Put that solar wind product into any of our products that we sell our customers and of course once we buy once we heard of the news we quickly.
Scoured our own networks and looked for any exposures and we didn't find that we were in any way exposed.
I will just get out of the way in terms of.
Has solar winds or or other security type incidents increased the appetite for it.
For leaders are seized those two focus on spending, especially in security of the answer is absolutely, yes, I mean.
The reason that I think it's very important that as the networking company. You also have security cockpit competence and you embed security at the of Forethought not an afterthought in all of the solutions that you sell to address the use cases that are important to your business.
It's never been more important so our security business.
In Q4 did not grow but theres a reason for the high end of our security, where we typically sell into large service providers cloud providers that tends to be lumpy the.
The broader part of our security portfolio is really the strategy there is to embed it into our solutions. So we talked a lot about mist, one element of our client to cloud mist solution is that it's going to be secured by default with the technology that we have embedded in our the.
<unk> solution portfolio and for that reason I'm actually quite optimistic about.
How the security trends on the appetite to invest in security by it.
Departments.
For our business.
So did you talk to any CIO C suites the.
Post the.
The fact broke in December.
<unk>.
One of our put it to me that the.
We wish we could have the half like this.
Every year, if you're going to have a hack habitat in December because of it.
<unk> spending intentions have you heard anything along those lines from anybody in the.
And the C suites that you talked to.
Yes, so my remarks.
Alex we are absolutely based on conversations that I have on an ongoing basis with the.
C suite professionals.
Big and very important part of my job is to talk on a regular basis to CEO CIO CTO of of large enterprises service providers cloud providers.
And the net of it is absolutely security is a top of mind consideration, it's driving spending and making sure that our customers understand the security is embedded in all of our strategic use case solutions.
The big part of my job.
Okay. Thank you very much.
You bet.
Thank you our last question comes from Ryan Koontz with Rosenblatt Securities. Please proceed with your question.
Thanks for the question great.
Great progress on the on the routing side with service provider stabilizing there I Wonder if you could give us any color on some of the use cases, you're seeing some of the new use cases in the enterprise and cloud as.
Is it as simple as the campus in the Dci Wan peace of mind missing some other interesting use cases.
Yes.
Pleased with our routing progress in Q4, we saw double digit routing growth and cloud providers and enterprises.
Governments and cable momentum was strong.
Mmm and Pts.
Grew both on a year over year on a sequential basis. So.
It does appear to be broad based.
The use cases today for us are mostly going to be in core routing and edge routing.
Some Dci data center interconnect the <unk>.
Thing that Im really excited about when it comes to the opportunity isn't on our metro roadmap. The metro represents around the $2 billion routing opportunity today, that's growing at a healthy clip, it's probably the fastest growing routing submarket of the overall routing market and it's largely untapped by juniper.
And the good news is this is just another high performance networking network, but it requires certain capabilities certain aspects of your products around footprint and efficiency power efficiency in certain types of features these are all within our wheelhouse and this is the roadmap that we are executing on we've already introduced the first product.
To address it but you can expect a number of new products that we introduced this year to complete our metro routing portfolio.
Net rounds really fits beautifully into the solution because it provides that automation and SLA assurance end to end that's important for the metro.
So that I believe is going to help us on our routing business the in 'twenty, one, but especially in 'twenty two when the when the portfolio is complete.
Couple of Rami, thanks very much.
My pleasure of Ryan.
Okay.
There are no further questions at this time I would like to turn the floor back over to Jeff Luber for any closing comments.
Thank you operator before we conclude today's call I'd like to remind everyone that juniper will be hosting its virtual 2021 Investor day on February 12.
<unk> presentation will start at 10, a M. Eastern standard time and can be accessed via a link which will be posted to our IR website. If you have any questions regarding how to participate in the event you can reach out to me at Jane Leubert at Juniper Dot net we look forward to hopefully seeing you there at that concludes today's call. Thank you.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful evening.