The networking-hardware sector is grappling with the aftermath of the Covid-19 pandemic, and this issue is significantly impacting the stocks within the industry.
Alarming Earnings News
Two players in the group have recently reported concerning earnings news. Extreme Networks shares have experienced a significant decline after the company provided financial guidance for the March and June quarters that fell well below Wall Street’s expectations.
Extreme Networks’ Projection
For the March quarter, Extreme expects revenue to be between $200 million and $210 million, which is a miss of over $100 million. Similarly, their guidance for the June quarter is in the range of $265 million to $275 million, below the consensus estimate of $355 million.
Reason behind the Shortfall
Extreme Networks attributes this shortfall to high customer inventories resulting from a surge in shipments. This surge occurred following the normalization of component availability in recent quarters, after the parts shortage caused by the Covid-19 pandemic.
A Familiar Trend
Extreme Networks is not alone in facing these challenges. Cisco, another prominent player in the sector, also mentioned a similar issue in their financial results announcement last November.
In Cisco’s own words, “Cisco saw a slowdown of new product orders in the first quarter of fiscal 2024 and believes the primary reason is that customers are currently focused on installing and implementing products in their environments following exceptionally strong product delivery over the past three quarters. Cisco estimates there are one to two quarters of shipped product orders still waiting to be implemented by its customers.”
The networking-hardware sector continues to navigate through these difficulties, and it remains to be seen how long it will take for the industry to fully recover from the disruptions caused by the pandemic.
Juniper Networks Reports Disappointing December Quarter Results
Juniper Networks, which recently agreed to be acquired by Hewlett Packard Enterprise for $14 billion in cash, announced its December quarter results on Tuesday. Unfortunately, the company missed its financial targets on almost every line.
Revenue Decline and Missed Guidance
Juniper posted revenue of $1.36 billion, which is a 6% decline from the previous year and a 2% decline sequentially. This fell short of the company’s guidance of $1.4 billion. The decrease in revenue was mainly due to a 13% drop in product revenue, although there was a 10% growth in services.
Non-GAAP Operating Margin and Adjusted Profits
The non-GAAP operating margin was 18.3%, slightly below the company’s target of 18.6%. Additionally, adjusted profits came in at 61 cents per share, missing the target of 63 cents.
Product Orders Down on Year-Over-Year Basis
On a year-over-year basis, product orders were down by single digits. Juniper attributed the revenue miss to “the timing of orders and our ability to deliver those orders within the period.”
Analyst’s Concerns and Market Reaction
Piper Sandler analyst James Fish expressed concern about the disappointing results in a research note. He mentioned that if it weren’t for the pending acquisition, Juniper shares would likely be selling off.
The news had a minimal impact on Juniper’s stock, considering the impending acquisition. However, the shares of Hewlett Packard Enterprise dropped 3.6% to $15.32. Other major players in the industry also experienced declines, with Cisco falling 3% to $50.69 and Arista Networks dropping 4.9% to $258.74.