Juniper moves to cut opex, expands offshore production

Juniper CEO Kevin Johnson has announced cost-cutting moves but promises a continued focus on R&D to enable it to emerge from the economic slump in a more competitive position. The company plans to boost spending on R&D by 15% to almost $800 million. Last year it spent 19% of revenue on  R&D. 

"Our operating assumption is that we will continue to have challenging conditions as we move forward, which means we have to cut expenses everywhere we can. Some of that will be redeployed back to R&D to fund our innovation agenda," Johnson said.

He told a group of analysts in the Bay Area it has frozen headcount outside R&D and customer service and cut pay of its top 90 executives by 5%. The CEO's salary was cut by 10%. It is reducing spending on sales and marketing and didn't increase salaries at the end of the year.

The company announced at its Q4 earning call that it would only provide guidance quarter to quarter due to "reduced visibility", with many large customers budgeting on a quarterly basis instead of an annual basis. "Some of our customers in the past would look at IP traffic and network capacity on a quarterly basis; now they're looking at it weekly," Johnson said.

He said the company also has moved to restructure bonus schemes, with 35% tied to company revenue, 35% operating margin and 30% to strategic objectives.

To cut costs in its supply chain it is in the process of boosting the percentage of offshore production in low-cost regions from 30% at the beginning of last year to 75% by the end of the year. The company's CTO said it's well on its way to that goal, with 55% of production now offshore.

While it continued to add R&D staff, the highest growth is in low-cost countries, where it boosted headcount 64% last year, compared to a 35% increase in North America. Some 40% of R&D staff are now offshore. About 45% of its employees are involved in R&D.

With $2.3 billion in cash and no debt, Johnson said over the past 30 days the company had spent $116 million on stock buybacks. Revenue grew 26% last year to $3.6 billion and its operating margin was 24% -- up from 21.3% in 2007. Sales to Asian service providers rose 72%.
Regarding M&A, Johnson said Juniper would consider small, low-risk, IP-based opportunities that complemented its portfolio. "For something large, deluded and risky or transformative, this is not a time to consider those types of M&As. Our No. 1 focus is our organic R&D plan. But there may be small pieces that could help round that out."