Through the first six months of 2018, Juniper Networks saw its revenue dwindle by 9.6% from the same period a year earlier. However, its cost of revenue fell by a much smaller proportion — just 1.4%.
Given those numbers, it’s no wonder that Juniper’s profits weighed in at just a bit more than half what the company earned in the first half of 2017.
It meant that things were going along according to plan.
This year is a key one, strategically, for Juniper. It’s selling more units of its computer networking gear than ever before, according to finance chief Ken Miller, but at a lower average price point as the company continues its shift to an altered product set.
Juniper’s transition has triggered lively discussion between the company and its investors, many of whom are understandably less than thrilled with this year’s business results. But the rejiggered product mix and the new pricing strategy were necessary changes, notes Miller in a recent visit to CFO’s offices.
Historically, telecommunications companies have been the largest customer segment for Juniper. Given their complex, feature-rich data environments, they need ultra-high-performance networking capabilities. Juniper has provided them with on-premises hardware — routers and switches — for the purpose.
But overall, most organizations today are putting more and more of their data and computing capacity into cloud environments. That has flattened sales of Juniper’s core products.
To grow, the company is banking on selling networking capabilities to operators of cloud services. It’s a volume play that’s working so far, says Miller, and Juniper is looking to 2019 for a resumption of revenue growth.
“There’s less revenue this year, but it’s strategic, because we want to make sure we keep our footprint growing going forward,” he says. “Cloud customers have much simpler networks than telcos, but they were buying a telco-grade router that did a lot more than they needed. Now we’ve built a purposefully cloud-first router, which is what they need at the economics they desire.”
The company is also moving aggressively to build a software business. “Networking is going through a pretty significant transition from infrastructure hardware to more software-based solutions,” Miller says, “where it’s all about automating operations and leveraging [advanced technologies like] artificial intelligence.”
Much of the networking equipment Juniper sells is aimed at securing data. In that context, AI systems “watch traffic flows and evaluate patterns to stop bad actors,” he notes.
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“Many companies have so many virtual workloads that it’s hard to keep track of them,” Miller says. “Automating the flows and security policy across that landscape, with some flows on-premises and some in public clouds, is an inherently complicated problem that CIOs are dealing with today. Allowing them to operate in that environment in a simple way is a focus for us.”
As a company dependent on continuous innovation, Juniper’s R&D operation is its first priority, even ahead of sales. That means general and administrative functions like IT and finance are chronically subject to tight budgets.
“Our CIO, Bob Worrall, has been asked to do more with less for multiple years,” Miller says. “We have to make sure we invest enough in engineering.”
Our conversation with Miller thus veers to the company’s IT operation and how it interfaces with finance.
Miller and Worrall are peers, both reporting to Juniper CEO Rami Rahim. “But we’re very close,” the finance chief says. “I clearly control the dollars, and he controls the services the business asks for. For him, it’s all about productivity. How can he help the business save money with IT solutions?”
And Miller leaves that mostly to Worrall to decide: “I get involved in things like ERP decisions or a new lab we’re going to build out, but he makes the day-to-day decisions and I don’t get too involved.”
The finance team works with IT to cost out all planned IT projects and determine where the “cut line” is.
“Bob is very clear on how much money he has, and he’s accountable to the budget,” Miller says. “If he needs to push back against a business [leader] who’s frustrated his or her project is not above the cut line, he’ll sometimes leverage my help. But for the most part the business is aware that he doesn’t hand out unlimited funds.”
One area where Miller works particularly closely with the CIO is reigning in “shadow IT” by centralizing IT services as much as possible.
“Today any [manager] with a credit card can order their own computing and storage [capacity] from Amazon Web Services,” he laments. “We have to make sure that we have our arms around that not only from a cost perspective, but also from a security perspective — knowing where our own data is.”
He observes, “The headline of a security breach at a security company would probably not be the greatest thing in the world.”