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Juniper to cut staff, miss targets

The maker of Internet routers says it will lay off about 8 percent to 9 percent of its work force amid disappointing second-quarter results.

Juniper Networks said Friday that it will miss second-quarter estimates and lay off 8 percent to 9 percent of its work force, joining a number of telecommunications equipment makers facing troubled times.

Shares of Juniper closed down $8.61, or 18 percent, to $38.02. J.P. Morgan Chase downgraded the stock to "market performer" from "long-term buy."

The maker of Internet routers said its second-quarter earnings and revenue will fall well short of Wall Street expectations. It expects second-quarter earnings to be about 8 cents a share to 9 cents a share on sales of $200 million to $210 million.

According to First Call, the company was expected to report earnings of 24 cents a share on sales of $323.9 million. Juniper previously told Wall Street that it would make between $300 million and $330 million in revenue.

Juniper blamed its shortfall on a "challenging service provider and global carrier business environment." It will take a charge of up to $45 million to account for its layoffs and the declining value of its investment portfolio.

On a conference call, Juniper CEO Scott Kriens said the company is going through what he called an "absorption cycle," since telecom service carriers have cut previously high spending levels on equipment, creating excess network capacity.

"Too much capacity has been deployed relative to the ability of demand to absorb that capacity," he said.

He also maintained that competition did not eat into the company's sales, saying that market conditions have hit everyone. "We have not caused anybody else's slowdown in this market, and nobody else has caused ours."

But no matter what the cause, the company got whacked from somewhere. CFO Marcel Gani said he expects second-quarter gross margins--sales minus costs in percentage terms--will fall to about 60 percent from 65.8 percent in the preceding quarter.

Gani pinned lower sales volume as the primary suspect behind the erosion but also acknowledged that price pressure from competitors caused some declines as well.

Looking ahead, Kriens said Friday that he could not predict when the current climate will improve and would not give any estimates for the second half of the year.

Kriens also said in a statement that the company's cost-cutting moves will not hurt its product-development plans.

The profit warning is quite a reversal for Juniper. The company has been taking market share in the high-end router market from rival Cisco Systems and was one of the few companies last quarter sticking to an upbeat outlook. Juniper remained steadfast despite profit warnings from Cisco.

On Juniper's first-quarter conference call, CEO Scott Kriens played down concerns that the company could be felled by a broad industry slowdown. Although Juniper cut its sales targets slightly in the first quarter, executives maintained that they could manage through a slowdown.

Analysts weren't so sure.

Greg Geiling, an analyst with J.P. Morgan Chase, said Juniper has a few challenges ahead--notably, competition from Cisco, falling profit margins, and a slowdown in telecommunications equipment spending.

"We continue to believe that the service provider (capital spending) environment is unlikely to improve in the second half of the year and will therefore continue to plague Juniper results over the next few quarters," Geiling said.