Juniper leader tries to innovate, cut costs
Plenty of tech startups enjoyed blazing-hot stock market debuts during the dot-com boom at the turn of the century. But the initial public offering of Juniper Networks was particularly explosive.
In 1999, the 3-year-old company, which mounted the first real challenge to Cisco Systems in selling routers and switches for the Internet, saw its stock price jump 191 percent on the first day of trading, a record at the time. A year later, Juniper stock soared to a mind-boggling $218 per share.
By the fall of 2002, caught by the implosion of the Internet sector and fierce competition with Cisco, its shares fell below $5.
As employee No. 32 at the time, Rami Rahim saw the company through boom and bust — and today, he is very much a humbled man. That’s what happens when you’re CEO of a company trying to overcome a decade marked by rapid technological change, made worse by internal hubris and dysfunction.
“We have in the past spread ourselves a little too thin,” Rahim told me. “As a consequence of that, we have found ourselves in a situation we were not able to innovate as effectively as we should be able to in
all of the markets that we serve.”
“I’m not saying we are never going to branch out again,” Rahim said. “When we feel that we are ready, we will take a measured approach to expanding.”
Like other Internet infrastructure firms of Silicon Valley, Juniper has struggled to adapt to an industry shift from expensive customized hardware to cheaper cloud software. But under Rahim, who became CEO in 2014, the company has cut costs, trimmed its portfolio and focused its research and development efforts on protecting systems from hackers and helping telecoms and cloud service providers build and operate remote data centers.
So far, his efforts seem to be paying off.
“From a product perspective, they’ve really filled in the gaps,” said Mark Fabbi, an analyst for the Gartner research firm. “When Rami came in as CEO, they really got things headed back in the right direction, and it’s clear now where Juniper is heading with their technology.”
Not without some drama, of course.
In 2013, then-CEO Kevin Johnson, a former executive at Microsoft, unexpectedly retired even though the company had been improving. The board of directors forced Shaygan Kheradpir, Johnson’s replacement as CEO, to resign amid questions about his conduct after just a year on the job.
Complicating matters was a campaign by activist hedge fund Elliott Management Corp. to force Juniper to cut costs. As a result, the company slashed operating expenses by $160 million and two years ago laid off 570 people, 6 percent of its workforce.
Last year, Juniper spent $994.5 million on research and development, a 4.6 percent drop from 2014.
Cutting research and development dollars might seem counterintuitive in a rapidly transforming industry, especially since rival Cisco Systems has kept its R&D budget steady at $6.3 billion. But the self-inflicted financial pain is perhaps just what the company needed to regain its focus and discipline, said Basheer Janjua, founder and president of the CTO Forum, a nonprofit group of technology executives focused on innovation.
“We’re seeing a new generation of cloud technologies that are replacing the expensive routers and switches that Juniper has been known for,” Janjua said. “It’s not easy to let people go, but what are your choices?”
“Juniper still has plenty of resources to innovate if they want to,” he said. “They just have to buckle up and really do it.”
Under Rahim, the company is seeing steady improvement.
In 2015, Juniper generated $4.86 billion in revenue, a 5 percent gain from 2014. The company said revenue from selling routers to cloud, telecom and cable companies increased 6 percent, while sales of switches to telecom and cloud providers that are building out data centers jumped 6.5 percent.
Last week, the company reported strong third-quarter earnings, which sent its stock soaring by more than 10 percent to $26.19. Juniper now predicts fourth-quarter profit of 59 to 65 cents per share, and revenue of $1.35 billion, more than analysts have forecast.
Sales of security products remain a problem. Juniper said such revenue in 2015 totaled $435.6 million, a 22.7 percent decline from the previous year. The company also disclosed in December that it found “unauthorized code” on operating software running its firewalls, a hack some suspected was the work of the National Security Agency.
“The key thing here is that Juniper fully understands that security and assurance of our products is of the utmost importance because those are the things that create trust in our customers’ minds,” Rahim said. “We took it seriously. We issued patches. We provided transparent communications through our blog.”
With cybersecurity becoming a growing problem, such as a denial of service hack earlier this month that shut down many popular websites like Twitter and Netflix, Juniper needs to fix its security business.
“Security is a top of mind concern for CEOs and boards,” Rahim said. “They are all talking about cybersecurity and looking to minimize the risk associated with threats that exist. No one wants to be on the front page of newspaper because they have been hacked and sensitive information has been stolen.
“This only reinforces the need for there to be strong innovation to help our customers build out large cloud networks,” he said, “and give people the peace of mind that they can can stay ahead of the bad guys.”