Juniper vows to keep Lucent partnership

Reporting its highest ever quarterly revenue contribution from partner Lucent Technologies, Juniper Networks this week quelled expectations that the partnership would dissolve following Lucent’s acquisition by Alcatel.

Lucent accounted for 10% of Juniper’s $566.7 million in first-quarter revenue, its biggest contribution since the two companies formed a reseller pact three years ago. The boost was an anomaly caused by especially big shipments to supply British Telecom’s 21st Century network initiative. (Shipments to BT also factored in, to a lesser extent, to the typical 15% contribution made by Juniper’s biggest partner, Siemens, in the first quarter.) Juniper expects Lucent’s contribution to return to historical levels in the second quarter.

The one-time surge of activity between Juniper and Lucent comes at a time when their partnership is clouded with uncertainty, since the latter’s pending acquisition by Alcatel gives it edge routing gear (including Alcatel’s 7450 and 7750 and the gear Lucent obtained through its acquisition of Riverstone Networks) that competes with Juniper’s.

In Juniper’s earnings call late Wednesday, Chief Executive Officer Scott Kriens said he has spoken with Lucent CEO Pat Russo since the Alcatel/Lucent merger was announced, and the two voiced a “clear commitment” to their current partnership. “We will continue to serve customers together,” Kriens said.

Adding his own opinions to his report of that conversation, Kriens argued that the Lucent/Alcatel merger will likely yield dividends for Juniper. In addition to being a gargantuan competitor, a merged Lucent/Alcatel will be one of the world’s largest system integrators, Kriens pointed out, and any system integrator’s business model depends on selecting best-of-breed technologies for its customers rather than just in-house solutions. Therefore, the new supersupplier will be motivated to continue selling Juniper products, he said.

“We continue to be strategically confident in that fact because it’s economically obvious,” Kriens said.

Kriens urged listeners to the earnings call not to get too confused by the various combinations occurring in the industry, such as Alcatel’s acquisition of Lucent or AT&T’s mergers with SBC and BellSouth. They don’t change the fundamental assumptions of Juniper’s business model, he said. “These are changes in ownership structure, not market requirements.”

Juniper’s $566.7 million in first-quarter revenue was up 26% from a year earlier. Revenue from enterprises was up 40% from a year earlier, and revenue from service providers was up 10%.

Juniper reported “some softness” in first-quarter sales of its edge networking gear, which it attributed to a revenue deferment of about $30 million related to a big deal with Verizon Communications that the vendor doesn’t expect to recognize until the first half of next year. Juniper won’t say which equipment the deferred revenue pertains to or why it was deferred beyond saying that it was related to Verizon’s plans for a specific project.

Juniper promised a new product in its edge portfolio will help sales in the second half of this year. Analysts have long argued that Juniper could use more Ethernet functionality in its edge gear. Kriens said the new product would address issues such as density and cost, that it would make Juniper’s portfolio more competitive and that it would focus on the conflict between network performance and speed.

Kriens further described Juniper’s strategy as one of using its entrenched position in core networks to spread the intelligence there (in systems operation and software) downstream to edge, aggregation and access networks.

In the battle to supply infrastructure for all parts of the network, Kriens said, vendors with a strong footprint in the core--such as Juniper, whose history there has given it more than 35% of that market--have an advantage over those at the opposite end of the network trying to work their way upstream.

“No network market has ever been won from the outside in,” Kriens said. “The battlefield is littered with access and hardware companies that have tried.”

Juniper expects to report between $560 million and $570 million in revenue for the second quarter, a 14% to 15% increase from a year earlier.