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We paired up with Tech Strategist Steve Milunovich to host a conference call with networking expert Alan Weckel of the 650 group. Alan’s preliminary 3Q switching estimates are 2% YoY growth, with data center up 3% and enterprise/campus up 2% (exhibit 1).
JNPR reported 3Q19 earnings after the close yesterday, posting a slight EPS beat vs. our model. Expectations were low heading into the print given various signs of weakening comm equipment demand over the past week. Routing did in fact come in light on Service Provider headwinds—(18)% YoY, but big sequential upticks in Switching and Security helped to offset. The stock traded up 5% in the aftermarket. Today’s results likely put more focus on what has setup as more of a 2H20 story. JNPR maintains enough idiosyncratic drivers to merit a re-rating upward, but it needs to pull together more frequent and more consistent proof points of execution.
John Treadway has worked with large enterprises considering both private and public cloud implementations, first at Cloud Technology Partners, which was acquired by HPE, and now at Symphony Solutions, where he is CEO. Although hyperscaler revenue growth is moderating, he argues it is mostly due to tough comparisons as cloud approaches $70bn of revenue. He says AWS’s Andy Jassy might be right that only 3% of workloads are in the cloud by dollars.
In addition to tracking the five major tech sectors—Hardware, Semis, Software, Internet, and Services—we have added 2-3 subsectors for each for greater granularity. We show their performance in our weekly Wolfebytes.
AWS gains decelerated from 41% in 1Q to 37% in 2Q and Microsoft from 73% to 64%, still solid results that suggest workloads continue to move to public clouds and capex should improve in the second half. Google Cloud’s stated $2bn includes G Suite. We don’t have history from the company, but our estimates suggest a doubling YoY as Thomas Kurian begins to triple its salesforce. Full-year growth for the top four should be about 40%. We are hosting cloud consultant John Treadway Tues at 2pm.
Tech was strong last week during the first wave of earnings. The Wolfe Tech Universe rose 2.9%, outpacing the S&P 500’s 1.7%. Despite trade issues and weakening auto/industrial demand, Semi stocks jumped 5.4% and passed Software in three-month performance (Exhibit 1). Top stocks this week included Snap (+28%), AMS AG (+27%), Teradyne (+23%), Flex (+15%), and Twitter (+13%). Laggards were PTC (-17%), Computershare (-7%), LG Display (-6%), Citrix (-6%), and Atos (-5%).
Juniper posted inline earnings after the close yesterday (7/25/19) and the stock traded up 2% in the aftermarket. Another steady quarter is a step in the right direction after a beat in 1Q. Numbers will come down as they did after 1Q, but both cases are explainable: first by layering in Mist and today with tariffs/taxes. Concerns over macro should see relief and the size of the tariff gross margin drag, 30-50bps, likely was a positive surprise to expectations. The stock continues to be a 2020 story, but discipline and execution though the balance of 2019 matters.
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