‘Net Gains

By Rebecca McReynolds Two decades ago, the Internet was a new communication tool with endless potential, but existing technology limited its application and adoption. Traditional phone lines that weren’t designed to handle the data and off-the-shelf computers with unstable software simply couldn’t support the increase in traffic. Leading analysts predicted the system’s imminent collapse. That’s when Pradeep Sindhu left his position as Distinguished Engineer at <a href="http://www.nyse.com/about/listed/xrx.html" target="_blank">Xerox Corp.’s</a> (XRX) Computer Science Lab in Palo Alto to spend six months thinking about a solution. His conclusion: The problem was the routers. Given their design at the time, he reasoned that routers would not be able to meet demand because the performance increases demanded by the network outstripped the performance increases provided by routers. He determined that a new hardware architecture was needed for routers — one that was based on separating the data path and the control path in a router and implementing the data path directly in silicon. Sindhu says he launched <a href="http://www.nyse.com/about/listed/jnpr.html" target="_blank">Juniper Networks Inc.</a> (JNPR) in 1996 to do just that. In the process, he revolutionized digital networking. “What we did was implement the entire forwarding path for the IP protocols directly in silicon and implement the control parts of a router on a general-purpose computer,” Sindhu explains. “Nobody had done that before.” By doing so, Juniper was able to focus on specializing the hardware for performance and scale, and apply the power of silicon directly to build the packet-forwarding heart of the machine. With high performance taken care of by the hardware, the software could now be more modular, cleaner, simpler and more open. That first router, run on Juniper’s Junos software, was 25 times as fast as the fastest on the market at that time, Sindhu says. Today, Juniper reports that it generates $3.6 billion in annual revenues (2008) and has 7,000 employees worldwide. Its products are used by every one of the top 200 service providers globally, says Sindhu, now Juniper’s chief technical officer and vice chairman of the board. He stepped down as Juniper’s chairman and CEO in 1996, he says, to focus on research. “We saw this really difficult problem, saw a large market that was underserved, and we fundamentally changed the way in which routers were built to deliver a network that would be much more reliable,” Sindhu says. <h2>Past as Prologue </h2> The Internet is at a crossroads again today. The explosion of mobile devices, high-bandwidth downloads and global demand for an always-on, high-speed connection has pushed the existing system to its limit, Sindhu says. He adds that without radical innovation, the network is likely to break — either because the costs of maintaining the infrastructure are impossibly high or because the complex, proprietary systems are unable to meet the demand. Under the direction of CEO Kevin Johnson, the company has made several strategic moves in the past year to ensure that it not only capitalizes on the next generation of data networking, often referred to as “cloud computing,” but also plays a leading role in its development that benefits business and society. “If the past 10 years were the decade of the high-performance network, the next 10 years will be the decade of the digitally connected culture,” Johnson says. Johnson, 49, came to Juniper in September 2008 from Microsoft Corp., where he had served as president of the platforms and services division. Prior to that he worked in systems integration and consulting at <a href="http://www.nyse.com/about/listed/ibm.html" target="_blank">International Business Machines Corp.</a> (IBM). The Washington State native and New Mexico State University graduate says his job as CEO is to provide strategy and structure for Juniper’s vision of the future. “It’s important for a technology company to have a thought leadership agenda,” he says. “We need to look forward to see how the industry will be unfolding over the next decade — where the disruptions might occur, what the opportunities might be and what their implications will be for our customers.” <BLOCKQUOTE> <h2>MORE ON JUNIPER</h2> <a href="moveinformation" target="_self" class="actionlink">Moving Information</a> <a href="junipertransfer" target="_self" class="actionlink">Juniper's Transfer</a> <a href="http://www.juniper.net/us/en/company/citizenship-sustainability/" target="_blank" class="actionlink">Juniper CEO Video</a> </BLOCKQUOTE> Internally, the company says, it has ramped up its R&D, investing more than $700 million in the past year in new product development and system upgrades. Externally, it says, it announced strategic partnerships with industry leaders such as Nokia Siemens Networks — a joint venture between <a href="http://www.nyse.com/about/listed/nok.html" target="_blank">Nokia Corp.</a> (NOK) and <a href="http://www.nyse.com/about/listed/si.html" target="_blank">Siemens AG</a> (SI) — and IBM to accelerate development and deployment of its routers into what Johnson calls “mega data centers.” And in November the company transferred its listing to the NYSE from Nasdaq, introducing a new logo and a new branding campaign at the same time. <PAGEBREAK> <div class="articleImg leftImg" style="width: 200px"><img src="/statics/Q10_Juniper_Denholm4642_180x200_TW.jpg" alt="Robyn Denholm" />Jonathan Sprague<div class="caption">CFO Robyn Denholm  is prepared for growth.</div></div> “Moving to the NYSE speaks to all of the things that we are working toward as a company,” explains Robyn Denholm, Juniper’s executive vice president and CFO. “It gives us a larger footprint and greater access to the financial services market, which is a key target market for us. And importantly, it provides recognition of the brand on a global platform.” <h2>Taking Aim at the Clouds</h2> “The fact is that the Internet traffic growth we have seen to date is just the tip of the iceberg,” Johnson says. Increased demand for mobility options and a surge in video traffic over the Internet are changing the way consumers and businesses navigate the virtual world. These forces will drive Internet traffic to continue to double every two years for the foreseeable future, threatening to overload existing network models, he says. Every major player in the industry is trying to classify this challenge under the catchphrase of cloud computing, which refers to moving applications from a computer-based hard drive to the “cloud” of the Internet, he explains. “What everyone else calls cloud computing, we call mega data centers,” Johnson says. <BLOCKQUOTE> “We have already seen many of the benefits of an open Internet,” Sindhu says. “All the applications that we see today could not have been possible in a closed-garden world.”</BLOCKQUOTE> Managing these mega data centers, which will need to be exponentially more powerful and efficient than current data centers, requires creating an entirely new network that is open, dynamic and profitable, Sindhu explains. “We have already seen many of the benefits of an open Internet,” he says. “All the applications that we see today could not have been possible in a closed-garden world. They are possible only because the open standard allowed the innovations of millions of people around the world to flourish.” Making the new network profitable for its customers is Juniper’s No. 1 business imperative, he says. Scrambling to keep up with the constant demand for greater bandwidth, Internet and telecommunications service providers such as <a href="http://www.nyse.com/about/listed/t.html" target="_blank">AT&T Inc.</a> (T), <a href="http://www.nyse.com/about/listed/vz.html" target="_blank">Verizon Communications Inc.</a> (VZ) and <a href="http://www.nyse.com/about/listed/s.html" target="_blank">Sprint Nextel Corp.</a> (S) in the U.S.; <a href="http://www.nyse.com/about/listed/dt.html" target="_blank">Deutsche Telekom</a> (DT) in Europe; <a href="http://www.nyse.com/about/listed/ntt.html" target="_blank">Nippon Telegraph and Telephone Corp.</a> (NTT) in Japan; and <a href="http://www.nyse.com/about/listed/cha.html" target="_blank">China Telecom Corp. Ltd.</a> (CHA) in China have been investing in their network infrastructure, which, according to Sindhu, is taking the profits out of the industry. “We absolutely need to figure out ways to help service providers become profitable,” he says. “Otherwise this ecosystem that we depend on simply won’t be there.” In addition, Juniper says, it intends to make the network dynamic and able to adapt to demands and applications that are constantly shifting. In November 2009, Juniper introduced MX-3D, a set of new routers designed to address and adapt to each of three key criteria: bandwidth, subscribers and services. Running on an upgraded Junos operating system and the new Junos Trio chipset, these routers have several times as much processing power as the routers currently offered by either of Juniper’s two major rivals, Cisco Systems Inc. and <a href="http://www.nyse.com/about/listed/alu.html" target="_blank">Alcatel-Lucent</a> (ALU), Sindhu says. What’s more, they understand and orchestrate network traffic in three dimensions, he explains, flexing up or down to accommodate changes in bandwidth, subscribers and services. “We are completely re-architecting the way information systems are built, deployed and used,” he says. <BLOCKQUOTE> <h2>MORE ON JUNIPER</h2> <a href="moveinformation" target="_self" class="actionlink">Moving Information</a> <a href="junipertransfer" target="_self" class="actionlink">Juniper's Transfer</a> <a href="http://www.juniper.net/us/en/company/citizenship-sustainability/" target="_blank" class="actionlink">Juniper CEO Video</a> </BLOCKQUOTE> One of the first and most high profile clients to sign on to this new network is the NYSE, where each millisecond counts as traders make bids, get them verified and close deals. A delay can mean millions of dollars to a trader if a stock price moves before the trade closes. The new Juniper-backed network, to be housed in two data centers outside New York City and London, is expected to cut current processing times by two-thirds, to about 50 microseconds, which could make the NYSE the fastest trading system in the world, Sindhu says. “This will change the way people trade,” he adds. “It allows better decision-making and increases market efficiency.” The benefits of the Internet accrue to any business that feeds off information and communication, according to Sindhu. He points to the travel industry. Twenty years ago, it could take a week or more to plan and book a family vacation. First travelers would go to the library or a bookstore to find information about places they wanted to visit. Then they had to go to a travel agent for transportation and lodging options. Today you can book a trip around the world in a matter of minutes on your laptop. “For most companies, information is their lifeblood, and having this information available in a timely way is the best way to increase efficiency and profitability,” Sindhu says. <PAGEBREAK> <h2>Partners by Design</h2> Central to creating a new, global network paradigm is working with partners to develop the broadest array of business applications possible, Johnson says. “Our vision for the company is, ‘Connect everything. Empower everyone,’ ” he says. “The approach we are taking is to open up our platform and bring our technology to the market in a way that enables innovation around our platform. Embracing our partners helps us increase the magnitude of innovation delivered.” <BLOCKQUOTE> “Our vision for the company is, ‘Connect everything. Empower everyone,’ ” Johnson says. “The approach we are taking is to open up our platform…in a way that enables innovation around [it].” </BLOCKQUOTE> For example, Juniper says, it strengthened its longtime relationship with IBM in July by signing an original equipment manufacturer agreement that will put Juniper’s EX Series switches and MX Series routers into IBM’s data center portfolio of products. This is expected to reduce network complexity significantly and to cut total cost of ownership by up to 61 percent in capital expenditures, up to 46 percent in power, up to 46 percent in cooling and up to 33 percent in rack space in the data centers, the company reports. The reductions will occur, Juniper says, because its routers are far more efficient than competing products. The two companies are also working together on their own lofty plans, Johnson says, building what they refer to as “cloud labs” around the world to demonstrate networking solutions based on a joint project called Stratus. Stratus is an initiative to create a single data center fabric that can support fully converged and virtualized data center environments. “IBM has a very significant global presence with enterprise customers,” Johnson explains. “Our ability to bring the solution set we have to offer, combined with IBM’s technology and its very significant global presence with enterprise customers, provides a significant strategic advantage.” Also, in third-quarter 2009, Juniper’s joint venture with Nokia Siemens Networks was granted regulatory approval in Europe to enter the Carrier Ethernet market. It has been a major player in the management and distribution portions of the networking business but never really had a presence in the access end of the market, says Jim Kelleher*, CFA, of Argus Research Co. This new joint venture, Kelleher says, will launch Juniper into every region in the world with one of the world’s leading communications equipment infrastructure providers. “Juniper has succeeded in compensating for its inability to compete in size with Cisco by aligning with some really global players,” he says. <h2>Accelerating Out of the Turn</h2> Individually, each of these strategic moves would have a significant impact on Juniper Networks’ growth prospects, Johnson believes. Collectively, the CEO says, they represent a dynamic shift that he expects will help drive Juniper toward its goal of becoming a $10 billion company. That was his objective when he took the helm as CEO — “one week before Lehman Brothers declared bankruptcy,” he notes. The global economic turmoil that followed, though, was a little more than a speed bump in executing his long-term strategy, he adds. “Like many other companies in the marketplace, we had to be thoughtful about our operating expenses, recognizing that we were certainly going through a challenging macroeconomic environment,” Johnson says. “We were intentional about tightening operating expenses but also intentional about continuing to invest in R&D and in customer satisfaction. Those two things we have executed very well.” According to Johnson, by October 2009, Juniper had posted two consecutive quarters of both sequential revenue growth and margin expansion. An increase in requests for proposals was a positive sign that the economy was starting to turn around. “Now we need to make sure we are accelerating out of that downturn with the right products so that we continue to take market share,” he says. From a market perspective, sales have stabilized on the service-provider side of the business, explains CFO Denholm. On the enterprise side, though, Juniper has been taking market share, even through the worst of the economic downturn, since it introduced its new line of Ethernet switches in 2008, just before the economy faltered, she says. “We invested $150 million in developing that new product line, and that has allowed us to create a bigger footprint in the enterprise market,” Denholm says. Juniper’s ability to continue investing aggressively in new technology even through down cycles, she explains, comes from its sizable stockpile of cash. In October 2009, the company had more than $2.6 billion in cash and investments, a cushion that Denholm says plays a pivotal role in the company’s long-term business plan. “If you are in a leading-edge, innovation-led company that has technical risk, you don’t want to be taking excessive financial risk,” she explains. Generating cash and managing that cash well are such important pieces of the financial equation at Juniper that senior executives’ performance evaluations include a matrix for each business unit’s cash flow margin. “With a competitor [Cisco] that is 10 times our size in revenue, we need to be financially prudent and have a good safety net in terms of cash,” she says. “And we want to be able to take advantage of opportunities that may come up.” *Jim Kelleher, CFA, of Argus Research Co., is not an officer, a director or a member of an advisory board at Juniper. Neither he nor his company owns securities in Juniper. <BLOCKQUOTE> <h2>MORE ON JUNIPER</h2> <a href="moveinformation" target="_self" class="actionlink">Moving Information</a> <a href="junipertransfer" target="_self" class="actionlink">Juniper's Transfer</a> <a href="http://www.juniper.net/us/en/company/citizenship-sustainability/" target="_blank" class="actionlink">Juniper CEO Video</a> </BLOCKQUOTE>

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2010-01-11T10:28:09-06:00

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Under CEO Kevin Johnson, Juniper Networks has an innovation strategy to revolutionize the experience and economics of networking in the decade ahead.

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2010-01-25T00:00:00-06:00

Under CEO Kevin Johnson, Juniper Networks has an innovation strategy to revolutionize the experience and economics of networking in the decade ahead.

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2010-01-20

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Juniper Networks is revolutionizing the experience and economics of networking.

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‘Net Gains

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