Juniper Networks said its third quarter earnings and revenue would fall short of expectations due to slowing sales to cloud providers. That move spurred analyst speculation about what cloud giant was curbing data center build outs.
On Wednesday, Juniper said that its revenue for the third quarter would be between $1.25 billion and $1.26 billion, down from its previous outlook of $1.29 billion to $1.35 billion. Non-GAAP earnings for the quarter will be 54 cents a share to 56 cents a share compared to an outlook of 55 cents a share to 61 cents a share.
What happened? Juniper said it was seeing slower revenue in its cloud business. CEO Rami Rahim said Juniper still had a strong position among cloud providers and a good strategy and product roadmap.
Juniper's cloud business is its second largest behind cable and telecom. Enterprise and cloud delivered $367 million and $380 million in second quarter revenue, respectively.
Of Juniper's top 10 customers in the second quarter, four of them were cloud providers. Juniper has cited reliance on a small number of cloud providers as a revenue risk. The profit warning spurred analysts to speculate on what cloud providers were trimming capital expenditures.
Cowen & Co. analyst Paul Silverstein said in research note that cloud customers have driven Juniper's results for the last 18 months. Silverstein said Amazon likely cut spending with Juniper given the size of the revenue miss. Amazon was Juniper's largest cloud customer followed by Facebook, said Silverstein. If other cloud customers like Apple and Google cut spending the outlook may be worse for Juniper in the future. "we suspect that the issue is not purely 'transitory,'" he said.
William Blair analyst Dmitry Netis said that Juniper was benefiting because cloud providers were building out networks to bypass carriers. By building out their own internet backbone, cloud players can deliver content and services to consumers and enterprises more efficiently.
"Our recent industry surveys reflect material slowdown (and potential digestion) of IP backbone build out with a couple of these cloud operators this quarter," said Netis, who noted that the spending pause may cover multiple cloud customers such as Google, Facebook, Apple, and Amazon.
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