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Global Credit Research - 28 Feb 2011
New York, February 28, 2011 -- Moody's Investors Service has assigned a first-time Baa2
senior unsecured rating to Juniper Networks, Inc.'s ("Juniper"
or "the Company") proposed U.S. $1.0
billion senior unsecured notes offering. The rating outlook is
Juniper's Baa2 rating reflects its strong revenue growth,
solid liquidity profile, strong cash flow generating capability,
low financial leverage and conservative capital allocation philosophy.
At the same time, the rating reflects Juniper's small scale
relative to its nearest competitor within the intensely competitive,
cyclical and volatile network equipment industry. As of December
31, 2010, Juniper had approximately $2.3 billion
in total available liquidity and no debt. Moody's anticipates
that Juniper will utilize the proceeds from the notes offering to enhance
liquidity, while continuing to pursue modest acquisitions and repurchase
common stock with internally generated free cash flow.
Juniper is positioned to benefit from continued growth in internet traffic
that will require service providers and enterprise network customers to
increase capacity to accommodate the additional demand. The growth
of mobile data and internet video traffic continue to strain existing
data networks, creating demand for higher speed networking equipment.
Juniper's service provider customer base is anticipated to require
significant capital investment in network capacity upgrades to support
surging consumer and business demand. Within its enterprise customer
segment, Juniper is under penetrated but Moody's believes
the company has the potential to capture market share.
Juniper is likely to continue to invest heavily in R&D, which
is required to pursue its strategy of targeting high-end IT and
infrastructure product markets. We expect the company will continue
to target small companies for M&A, preferring to purchase growth-phase
companies to expand the Juniper product line rather than larger M&A
targets which would materially add to current revenues.
Juniper is a relatively small player in the network equipment industry,
with annual revenues which are approximately one-tenth the size
of industry-giant Cisco Systems. This scale disadvantage
is most pronounced when comparing Juniper's distribution and R&D
capabilities. Juniper relies heavily upon partners for sales distribution,
for many customers outside the U.S. and for smaller enterprise
clients. Juniper has increased spending on sales and marketing
efforts, investing in its sales channel capabilities in 2010.
Juniper's R&D spending for fiscal 2010 was over 20% of
revenues. Moody's anticipates that Juniper will continue
to grow R&D spending approximately in line with revenues over the
next 2-3 years. We project stable operating margins of approximately
20% (Moody's adjusted) through 2013, with top line
growth of 15% or higher.
Juniper has historically maintained a high cash reserve and has indicated
to Moody's its plans to continue along this course. Management
demonstrated its conservative financial philosophy by scaling back share
repurchase activity during the recent recession in order to maintain financial
These operational and financial strengths are necessary given the highly
competitive environment the company operates in and the risks associated
with technology transitions and demand cyclicality and volatility.
Moody's estimates that Juniper's leverage will remain modest,
with Debt to EBITDA (Moody's adjusted) of 1.1x at year-end
2011, falling at a moderate pace through 2013. We anticipate
that FCF/Debt will be above 50% and EBIT/Interest coverage will
be in the mid-teens, also indicative of a very strong credit
Juniper's strong liquidity was comprised of $1.8 billion
in cash and $475 million in marketable securities as of December
31, 2010. Of the total $2.3 billion in cash
and marketable securities, more than 60% was held at foreign
subsidiaries and potentially subject to U.S. tax upon repatriation.
Juniper had no debt as of December 31, 2010.
Moody's could raise Juniper's ratings if the company's
strong operating performance continues and it maintains discipline regarding
capital allocation and liquidity management. Additionally,
continued success in growing market share as evidenced by revenue growth
while maintaining strong profitability could support upward ratings movement.
Moody's could lower Juniper's ratings if the company were
to experience profit margin compression which resulted in operating margins
below 15% on a sustainable basis, a slowdown of top line
growth or weakening of its currently robust cash flow generation capability.
Additionally, if the company were to increase its share repurchases
materially or engage in aggressive debt financed M&A activity,
negative ratings momentum could build. A deterioration of liquidity,
specifically if Juniper's domestic cash balance sustained less than
$1.0 billion or leverage sustained above 2x combined with
a weakening of operating performance could also lead to downward ratings
This is the first rating action Moody's has taken on Juniper.
The principal methodology used in this rating was Global Communications
Equipment Industry rating methodology published in June 2008.
Juniper Networks, Inc., headquartered in Sunnyvale,
California, is a leader in communications networking equipment with
revenues of $4.1 billion for the twelve months ended December
31, 2010. Juniper's products include its core routers and
switches, that allow customers to move voice, video,
and data traffic across their networks as well as, security products
and software that enables the efficient operation of data networks.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Baa2 first-time debt rating to Juniper; outlook stable
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