Juniper’s Cloud Computing Gaining Traction With New Orders

Juniper (NYSE:JNPR) is steadily making progress in the cloud computing market with its software-defined networking (SDN) and network function virtualization (NFV) solutions. The company’s open source network virtualization solution, Contrail, was recently deployed by Czech cloud computing provider tcp cloud to improve orchestration and automation in its physical and virtual cloud infrastructures. This is expected to help tcp cloud in faster deployment of high-density private cloud solutions for its customers, reducing the build time drastically from six weeks to just seven days. ^[1]

Juniper’s cloud networking solutions were also recently deployed by global communications service provider BroadSoft for its Unified Communications (UC) service called BroadCloud. Juniper will provide comprehensive networking solutions including routing, switching and security products to help BroadCloud provide flexible and scalable cloud-based infrastructure to deliver a variety of UC services including instant messaging and presence, audio conferencing, video calling and Hosted PBX. The products deployed in this project are Juniper’s MX Series 3D Universal Edge Routers, EX Series Ethernet Switches, QFX Series Switches and SRX Series Services Gateways. ^[2]

In an effort to improve the security of its cloud offerings and virtualization services, Juniper recently also upgraded its Spotlight Secure threat intelligence platform to enable customers to protect their networks and data from a variety of threats and viruses. This essentially integrates the Spotlight Secure platform with the firewall feature in Juniper’s SRX Series Services Gateways. We expect the recent orders and enhancements in virtualization security to help Juniper win more clients and improve its presence in the rapidly expanding and competitive cloud computing and virtualization market. ^[3]

We have a price estimate of $28 for Juniper, implying a premium of over 20% to the current market price.

See our full analysis of Juniper Networks

Juniper’s SDN Strategy

Juniper launched the Contrail SDN controller for enterprises and service providers last year, leveraging its $176 million acquisition of Contrail Systems in December 2012. SDN is transitioning the networking world towards more scalable and manageable architectures where a robust software system can be managed independently of of the physical hardware. As the company describes it, Contrail interoperates with not only enterprise open cloud orchestration environments such as OpenStack and CloudStack, but service provider Operations and Business Support Systems (OSS/BSS).  It thus acts as a robust, reliable and manageable platform unifying these disparate network environments. And it demonstrates the advantages offered by an infrastructure that is increasingly software-defined. ^[4]

The networking vendor also made the Contrail source code open in a bid to attract developers and build a vibrant ecosystem around its SDN products. Although this increased the risks of commoditizing the SDN controller even further, it gave Juniper a better chance of competing against the likes of Cisco (NASDAQ:CSCO) which has a much more substantial share in the data center market. Juniper will likely continue with its strategy of using the open source Contrail platform – the increasing use of which is likely to drive traffic and increase demand for its routers and switches.

Cloud Computing Boosting Switching Sales

In the second quarter this year, Juniper’s switching sales grew by an impressive 25% year-over-year (y-o-y) to about $200 million driven by sustained strong demand for QFabric products. This followed the 46% y-o-y growth recorded in the business in the previous quarter.

Cloud computing has been an important factor driving this momentum as more and more enterprises look to create scalable virtual networks. In the second quarter, Juniper delivered two large cloud projects using its Contrail platform. One of the projects was in the Asia-Pacific region and the other was CloudWatt, the largest cloud in France. Sales were also driven by the growing demand for next generation data center transformation projects, coupled with a need to deliver at a high degree of operational simplicity. ((Juniper Networks’ (JNPR) CEO Shaygan Kheradpir on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, July 22 2014))

Juniper’s switching business has performed impressively in the last few years, with sales increasing 15% and 12% y-o-y in 2013 and 2012, respectively. Going forward, the introduction of new products, expansion in SDN and NFV and its ability to promote the open converged framework (OCF) concept could help Juniper gain share in the global switching market. ((Cisco maintains 62.2 percent market share in Ethernet switch market, Fierce telecom, Aug 2013))

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1. tcp cloud Selects Juniper Networks to Automate and Orchestrate Its Physical and Virtual Cloud Infrastructures, Juniper Press Release, Sept 22 2014 [↩]
2. BroadSoft Selects Juniper Networks to Power Its Global BroadCloud Data Centers, Juniper Press Release, Sept 16 2014 [↩]
3. Juniper Networks Expands Spotlight Secure to Stop Advanced Malware and Emerging Threats, Juniper Press Release, Sept 9 2014 [↩]
4. The Open Cloud Network Journey Begins Today with Juniper Contrail, Juniper, Sept 16 2013 [↩]