On this Episode of Making Markets, Juniper Networks CEO Rami Rahim joins the show following the company’s most recent slate of announcements and just a week after its earnings to discuss the company’s product innovation, growth initiatives, and its migration to experience-first networking.
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Daniel Newman: On the heels of a solid Q3 earnings, Juniper Networks saw its stock jet us into a five year high with an aggressive experience first strategy and growing diversification from its traditional service provider customer base to rapid expansion into cloud and enterprise. Juniper seems destined for more growth to follow. Juniper Networks CEO Rami Rahim joins me to talk about this and more on this episode of Making Markets.
Announcer: This is the Making Markets Podcast, brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies, bridging the gap between strategy, markets, innovative and the companies featured on the show. The Making Markets Podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, principal analyst and founding partner of Futurum Research, Daniel Newman.
Daniel Newman: Rami Rahim CEO, Juniper Networks. Welcome to Making Markets.
Rami Rahim: Daniel, it’s a pleasure. Thanks for having me.
Daniel Newman: Yeah, I’m really excited. I’ve been waiting a while to have this conversation. I have been tracking and following and working along and advising some of the teams. Had some great conversations with a number of your key lieutenants, Manoj, I’ve spoken with Samantha on their security team and actually had them on some of my shows before. But you’ve had a lot going on, so I guess before I dive in, you know, kind of overall, how are things going for you right now?
Rami Rahim: I feel really good about how things are going for us right now. I mean, we just wrapped up our third quarter. Demand is exceptionally strong, momentum is strong, differentiation has never been better at Juniper. So I feel really like the strategy that we have been working on, we’ve been executing on for the last several years, is really coming to work for us now and it just feels great.
Daniel Newman: Yeah, the culmination of good execution and obviously market rewarding that effort are really, all the CEOs I’ve had on this show seems to be one of those things that you’re all clamoring for. And there’s times where you feel like all that work is not being realized and then when you finally hit those points where it is paying off. Because sometimes what’s happening behind the scenes just can’t be visualized yet and it doesn’t necessarily come out. But I actually did, you know, listen to your most recent earnings call. Your transcript, I read it. You know, I saw the market response. I believe you hit an all-time high. You know and it’s staying pretty close there right now. I just looked at it before we hopped down to record this show. So things are looking really positive for you.
And by the way, I think that might be a great place to start. You know, the show, isn’t a focus on earnings itself. I like to really get between the lines, but since you did just have a big event and a big earnings moment, maybe give a quick recap of the most recent earnings and really what stood out to you and what excited you.
Rami Rahim: I’d be happy to. So orders are really strong at the moment. You know, we have seen now over 50% growth in orders for the second consecutive quarter. What I really like about the business right now is the diversity of the strength we’re seeing. So all of our key solution areas experience more than 50% order growth on the year of year basis. We also talked about our backlog. We’ve grown our backlog by over a billion dollars from the beginning of the year to the end of Q3. And of course that gives us exceptional visibility into next year, which is why we were able to provide a lot of confidence in our revenue and operating margin performance next year. And I really think, as I just mentioned, that this is a result of the key strategic actions that we’ve taken as a company. We have a bold new vision in experience first networking, we’re investing organically and inorganically to achieve significant differentiation in our key use cases, customer use cases for the WAN, the AI driven enterprise and the cloud ready data center.
Daniel Newman: Yeah, you hit on those things that I’m going to ask you about by the way, cause I want to talk about experience first. I think that’s a really important topic. And for those that are following the company, I think it’s something that it’s important that they really get it.
Now I did want to just mention, because I did listen to the call and I thought you had some really good explanations, you and your team, about what’s driving that surging demand. I think with all the talk about things like supply chain, things like accelerated transformation, that’s been going on because of the pandemic. I liked how you sort of put that in the call. Do you mind just taking a moment, just talking a little bit, what’s driving that backlog? Because backlog’s exciting as long as it’s not purely being caused by a lack of ability to fulfill the orders that are out there.
Rami Rahim: Yeah, it’s a great question. And I sincerely believe that Juniper today has the highest level of technology differentiation in the history of the company. And we look at that differentiation from three lenses, three specific solution areas. In the WAN, this is our pedigree. WAN is a wide area, right? It’s our pedigree. This is what Juniper’s known for.
The big industry inflection point is around 400 gig. And we are really pleased with the 400 gig momentum. We’re taking down account after account, we’re winning account after account with our 400 gig solutions. We introduced the industry’s first 400 gig routing platform. The industry’s first 400 gig interface with integrated security. And we’re moving aggressively into the fastest growing sub segment of the WAN, which is the Metro. In the AI driven enterprise, we’re the only solution built ground up with an architecture that’s scalable to the largest organizations in the world.
And that makes us the only technology that literally fixes the issues before humans even know about them. And that’s extremely compelling for a large or medium or even a small enterprise. And then last but not least, it’s the cloud ready data center. I mean data centers another key area of focus for us. We have this incredible data automation solution the Nostra company they acquired earlier this year. It’s the most scalable, the most comprehensive from a day two operations standpoint and really they wrote the book on this concept of intent based networking. All of that differentiation is working for us right now.
Daniel Newman: Yeah, absolutely. And by the way, I’m a big fan and I’ve always been told, hire people that solve problems you don’t know you have. Well, you have technology that’s now doing that and that of course has to be a key pillar in any company’s digital transformation strategy.
Now, I also did note, as I was reading through some of the analysis of your earnings, that the distribution of your top 10 customers also hits the different targets. Now you’ve got representation across all three, the cloud scalers, the service providers and enterprise. I know enterprise for instance, has been a target that the company’s really been looking to grow and now in your top 10 includes enterprise, so that was really good.
You mentioned this Rami, you mentioned that you’ve been aggressively promoting experience first networking, playing on the growing focus across industries, products and services, all on experience. And you know I’ll say, experience is one of those words that gets used a little bit, maybe even too much. I’d like you to dive into this. How do you bring this to life? How do you truly differentiate it and build greater affinity? Make people love the brand. And by the way, I’d like to know especially in those areas, cause there are markets where you guys really do have that affinity and there are markets where you want to build.
Rami Rahim: Yeah. Well first you’re absolutely right in your observation that the diversity in our business across cloud service provider and enterprise has never been better and more balanced. I mean, with that balance, you just get more predictability in the business, more of an ability to compensate for industry dynamics, synthetically of certain market segments. On experience, first, this has become a more than the strategy for Juniper. It’s true north. It’s a calling. It’s something that we view every investment we make with that lens to determine how we’re going to transform the experience of our customers and our partners. And to be very specific, we’re looking to transform the experience for two key stakeholders. Those that use our products to run the networks that are typically in the trenches, getting the 3:00 AM calls because something is wrong. We want to make their life much, much easier.
And second is the end user that are you using the network for whatever reason there is, we want to make their life or their experience really best in class. The way which we want to achieve this, I think is truly unique in the industry. We want to tap into these things that we call flywheel. Okay? And I’ll sort of explain this in just a few seconds. You start by building networks that do more than just connecting people and things together. They themselves are cloud connected through high performance data and telemetry. That performance data is than very valuable to give us insights, to make us smarter about whether the network is actually performing well. That leads to outcomes for our customers, faster deployments, fewest trouble tickets, fastest time to recovery.
That yields better products, better networks, happier customers, more customers, which brings more data that allows us to get even greater insight and become smarter. That is a sort of a self-feeding cycle that has created incredible value for our customers, our partners, and our customers’ customers. And I believe that we’re the only company that has the IP, the assets, the technology, the capabilities to bring these flywheels to life. And you can see them in the results today.
Daniel Newman: Yeah, I think the results are there. The announcements that you made and the company made last week, definitely brought some additional interest to me. Looking at a lot of the investments around AI, the investments around data and analytics, I almost couldn’t help and wonder if you’re moving into the observe ability space. Just on the periphery, you talked about telemetry, you talked about data.
Because obviously the more data you have, the more you’re able to negate threats, the more you’re able to. Cause you guys obviously have a huge footprint in security and a very important footprint there. But when you talk about an area that people are concerned about it’s how do I keep our data safe? Right? It’s not just how do we connect all that networking, but it’s as all that data’s in flight or at rest, how do we make sure that we protect our customers?
So you got a lot of things you’re up against you know? From that most recent launch, are there one or two things that you’re really excited about? Can’t wait to get back in front of the industry, in front of the customers, in front of the financial analysts and talk more about.
Rami Rahim: Well, it’s hard to choose quite frankly. First you’re absolutely right in that key part of the solutions we’re delivering is tapping into the most precious resource in the world. It’s data. And then using that data to apply AI and then doing useful things with it.
We actually recently announced a new support insights capability. That essentially allows our customers to connect any Juniper product, any Junos product across any use case to the cloud, in ways that allows us to deliver incredible value for our customers. So identifying cert issues, security issues, the need for patches, understanding if there are renewals that are necessary. These are things that are going to be deployed and offered to our customers over a period of time as we add more and more software capabilities and the early reception from this launch has been really, really impressive.
And I should also mention Daniel, that a key proof point that we’re onto something and that again we’re seeing the results, is that a key part of experience person networking is software. It’s the magic, the glue that ties these solutions together. Our software business grew at 67% year of year in the Q3 timeframe, record orders and ARR, which is a key metric for software, because this is a recurring metric that is predictable, has great gross margins, of course, our investors pay close attention to this metric. That grew at 30% year of year. So I look at these metrics, these data points as an indication of the strength and the momentum of our experience first strategy.
Daniel Newman: Yeah and it’s so important that you hit on this, because part of what I think sometimes when markets are evaluating companies that are infrastructure heavy and historically infrastructure heavy, the value often gets tied with lower multiples and it’s specifically looking at hardware and maybe service attach. And every company now, the holy grail is moving to software in ARR and we’ve seen this. We’ve seen this happen in almost all cases, yet the value, even as companies are becoming extremely successful at this, has been sometimes slow to follow. And Rami, I mentioned to you this and everyone that’s been listening to the show probably knows, is one of the reason I actually started this show was leaning into these gaps. These gaps between Wall Street and tech. The gaps between the way companies are valued and the way tech companies have been evolving, innovating and transforming themselves. When you talk about Juniper, let’s start here. What do you think the market is missing? What are they not valuing as much as perhaps they should be based upon all this progress you speak to?
Rami Rahim: Well, it’s a great question. And I will admit, it’s definitely a question that I think quite a bit about. You know, we are a company in transition right now. We’re no longer the company that many people know us to be in the past, which is a routing company that serves Telcos. And trust me, we still love building routers and we still love our Telco customers, but that’s not the only thing that defines us. We have diversified across vertical market segments, across technology areas, across geographies. We have a clarity in strategy that keeps us on the right side of industry dynamics. That’s the most important job that I have as CEO, to ensure that we’re on the right side of that change that’s happening in the industry.
Our differentiation has never been stronger with a key focus on deliberate solutions in the WAN, the data center, the enterprise, the security built into all of the above. I think we’re executing exceptionally well right now. You know, I feel like the strategy’s paying off. You can see it in the business momentum. And importantly for our investors, we’re really taking prudent and focused investments. You know? Really being very careful in making sure that all the investments we’re making add true value for our customers and all of our stakeholders. And you know, last but not least, we’re demonstrating that confidence by being opportunistic with our capital allocation strategy and buyback so. You know all of this I think working for us now, but I also do believe that our best days are still ahead of us.
Daniel Newman: Yeah, you really do hit on a lot of the right notes. You guys have a lot of the foundations of value, like the div that you offer, you’re making the right investments, taking some of that capital and allocating it to buybacks, but also a lot to R&D, which is very important. You can obviously drive a price through buybacks, but people see through that. So they want to make sure you’re investing.
You look at the categories that you’re participating in Rami. I mean, AI, security, recurring cloud, you’re supporting the networking needs of the world’s largest and most important cloud scale companies, enterprises and then of course, the connectivity with those service providers that you mentioned.
So, sometimes I really do wonder why the market doesn’t see through that. But I guess they talk about the squirrel, the shiny object. And sometimes these companies that are robust, they get things right, they do it, they execute. Just simply don’t always get as much credit as perhaps they deserve. But I think in a lot of portfolios, a lot of people’s lives, when you’re saying, hey I want something good, reliable, that’s on the right track, companies like yours, the company that you’re leading are doing the things that should give those people that looking for that, a lot of confidence.
Rami Rahim: Well, you summarized it really well. And you know, for any company that’s going through a transition like this, sometimes it takes a little bit of time. I feel like we’re on a good run now. I think we’re getting recognized for the momentum and the progress we’re making. But I also believe that in time we’re going to get even more credit for all of the hard work that the team that I’m incredibly proud of has executed on.
Daniel Newman: Yeah, I’m going to leave you there Rami, but I want to say thank you so much for joining us here. I’m going to ask to have you back here at some time, maybe in the next couple of quarters, because we’ll want to hear how it’s going, how these launches gone, is the growth on track, new customer wins, of course, that’s all of the things that our audience here on Making Markets wants to hear about. But Rami you’ve been a great guest and take care and good luck in this upcoming quarter.
Rami Rahim: Thanks so much Daniel. Look forward to coming back.
Daniel Newman: Well there you have it everyone. Really interesting conversation here with Rami Rahim, CEO of Juniper Networks. Companies doing a lot of things, moving in the right direction, playing in the right spaces and winning the types of customers that the streets should be looking for the company to win. From a technology standpoint, from a business standpoint, firing on all cylinders, definitely more room to grow, definitely more room for these new experience first networking tech solutions to be adopted, but I’m liking what I’m seeing. Definitely a company to keep eyes on and follow. And I look forward to hearing more from Juniper Networks, but for now, I’m out of here.
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