Juniper Networks Inc (JNPR) — Q4 2021 Earnings Call Transcript

Thank you, operator. Good afternoon, and welcome to our fourth quarter 2021 conference call. Joining me today are Rami Rahim, Chief Executive Officer; and Ken Miller, Chief Financial Officer. Today's call contains certain forward-looking statements based on our current expectations. These statements are subject to risks and uncertainties, and actual results might differ materially. These risks are discussed in our most recent 10-Q, the press release and CFO commentary furnished with our 8-K filed today and in our other SEC filings. Our forward-looking statements speak only as of today, and Juniper undertakes no obligation to update any forward-looking statements. Our discussion today will include non-GAAP financial results. Reconciliation information can be found in the Investor Relations section of our website under Financial Reports. Commentary on why we consider non-GAAP information a useful view of the Company's financial results is included in today's press release. Following our prepared remarks, we will take questions. We ask that you please limit yourself to one question so that as many people as possible who would like to ask a question have a chance. With that, I will now turn the call over to Rami.

Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q4 and full year 2021 results. I hope you and your families are well, and my thoughts go out to all those who continue to be affected by the global pandemic. We delivered strong results during the fourth quarter, with revenue and non-GAAP earnings per share both exceeding the midpoint of our guidance, despite continued challenges from a supply chain perspective. Demand remained strong and exceeded our expectations with orders seeing high teens year-over-year growth when adjusted to account for extended lead times. On an unadjusted basis, orders grew by more than 50% year-over-year for a third consecutive quarter, and our ending backlog increased to a record level of more than $1.8 billion. Order momentum was strong across all verticals, all customer solutions, and all geographies with each of these categories experiencing strong double-digit order growth year-over-year. Our Q4 results capped a very strong 2021, which saw us grow our Enterprise business for a fifth consecutive year, grow our Cloud business for a third consecutive year, and return our Service Provider business to growth. Not to be overlooked, we also expanded our non-GAAP operating margin year-over-year, despite absorbing material increases in both supply chain and acquisition-related costs. Our teams are executing extremely well, and we are entering the new year with strong momentum. This momentum is being driven by our strategic actions, and there are four pillars that give me confidence as we look forward to 2022. First, our commitment to experience-first networking and delivering technologies that simplify customer operations and improve the end-user experience. While our experience-first journey started with Mist and then 128 Technology in our AI-Driven Enterprise portfolio, we subsequently extended this vision to the data center with the Apstra acquisition and the service provider market with our Paragon Automation suite. These software-centric solutions give us important strategic control points that not only create new recurring revenue opportunities but also differentiate and pull through other Juniper products, creating a multiplier effect that will benefit growth in the years to come. Our experience-first vision is a key point of differentiation for our product that we believe is resonating across customers and providing confidence in our future prospects. Second, we are highly focused and aligned to three major use cases: Automated WAN, AI-Driven Enterprise, and Cloud-Ready Data Center solutions, and we are enabling security to be seamlessly embedded within all of them. Each of these use cases is likely to see attractive market tailwinds over the next several years, focusing our company from product management to engineering to go-to-market on a handful of meaningful and growing opportunities, enabling us to accelerate our growth in 2021. This focus also enables us to continue to deliver the technical differentiation and new innovations to capitalize on the big market inflection that we see unfolding in 2022 and beyond. Third, our go-to-market transformation is yielding meaningful results. This started with a change in sales leadership back in early 2019, which was followed by a meaningful increase in quota-carrying sales reps during 2020 and incremental sales development and enablement capabilities in 2021. We have also made meaningful investments in our channel, increasing the total number of Juniper channel partners by more than 30% since 2019. This investment not only resulted in record channel sales this past quarter but also over a 100% increase in year-over-year deal registration, which reflects robust demand generated solely by the channel. These investments in our sales and channel organizations have enabled us to accelerate our growth and should position us to do so again in the upcoming year. To be clear, we view our go-to-market organization as a competitive advantage where we will continue to invest to capture share. Finally, we continue to transition our business to a more software-centric model. This includes transforming more of our perpetual offerings to term-based licenses, introducing more ratable subscription offerings, and training our sales organization to better monetize the value of our software stack. While these efforts remain in the early innings, we experienced encouraging momentum in the Q4 timeframe, which saw total software and related services revenue grow 41% year-over-year and orders increased by more than 100% year-over-year. Our annualized recurring revenue, which solely consists of truly ratable software subscriptions and related services increased 32% year-over-year due to strong demand for Mist and certain security subscriptions. We are encouraged by the progress we're making in our efforts to capture more software revenue, which we view as critical to not only accelerating growth but also improving customer stickiness and margin. Our strategy is well-aligned against a backdrop of healthy end markets that should position us for growth over the next few years. This growth is being driven by the strategic importance of the network, which is only likely to increase in the coming years as enterprise digital transformation and clarification initiatives accelerate Cloud and Service Provider 400-gig upgrades, build momentum, and Service Provider 5G investments expand beyond the radio access layer to the Metro, Edge, and Core portions of the network. While I'm encouraged by the market dynamics we're seeing, I strongly believe the products we are delivering, the customer engagement we've developed, and the investments we've made in our go-to-market organization will position us to gain share and deliver sustainable growth in the years to come, regardless of end-market conditions. As you can tell, I am very optimistic regarding our future projects, despite the supply chain challenges we're continuing to navigate. I believe these challenges are likely to prove transitory, and the strong order momentum we're seeing and the backlog we have developed sets us up extremely well to deliver solid growth and improved profitability in 2022 and beyond. Based on our recent order momentum, current backlog levels, and our assumptions regarding supply, we currently expect to deliver 7% to 9% sales growth and at least a point of operating margin expansion in 2022. Our expectations for 2022 assume current supply chain challenges persist and that we are unable to work down backlog during the year, potentially creating longer-term tailwinds for our business once the supply chain improves and backlog returns to more normal levels. While we would expect gross orders to decline in 2022 as lead times stabilize and we start seeing fewer early orders, we expect adjusted orders to grow for the year. Now, I'd like to provide some additional insights into the quarter and address some of the key developments we're seeing from a customer solutions perspective. Starting with our Automated WAN Solutions, which saw strong momentum from both a revenue and order perspective, particularly with our Cloud and Service Provider customers. We saw healthy demand across both our MX and PTX product families and strong adoption of our newer products, as well as our Paragon Automation portfolio. Our 400-gig solutions are performing well, and we now have more than 200 wide area wins that should present building tailwinds from a revenue perspective in the years to come. We are continuing to invest in our Automated WAN portfolio, and just recently announced next-gen custom silicon families for our MX and PTX platform that will offer industry-leading throughput, power efficiency, and logical scale, all while maintaining investment protection. We are also continuing to invest in our ACX Metro portfolio, where we continue to see strong early interest that should further build as we complete the portfolio later this year. These investments are resonating with our Service Provider and Cloud customers, who appreciate that no single silicon family is optimized for all use cases and prefer to purchase systems with silicon that is purpose-built for the job at hand. We are playing to win across all areas of automated LAN solutions and making the investments needed to capitalize on our customers' Core, Edge, and Metro requirements that we believe present opportunities for growth over the next several years. Our AI-Driven Enterprise revenue significantly outpaced the market, growing 29% year-over-year in Q4 and 27% on a full-year basis. It has been especially exciting to see our Mist solution go from a cool technology to a leader in the 2021 Gartner Magic Quadrant for wired and wireless access, with top scores in both vision and ability to execute, buoyed by several unique architectural differences, including leading AIOps and a modern microservices cloud, and we continue to see record numbers in our wired and wireless access business. For example, our wireless revenue more than doubled year-over-year in Q4, and the winning continues as we recently closed a multimillion-dollar win with a major multinational bank based on simplified operations via AIOps and location services that leverage our patented virtual BLE technology. We're also seeing strong Mist pull-through of our EX switching portfolio, which experienced record orders and units sold in the fourth quarter. Our Mistified revenue of wireless LAN, wired access, Marvis Virtual Network Assistant, and associated EX pull-through more than doubled in Q4 as compared to last year, and our annualized order run rate surpassed $600 million in the quarter. On a full-year basis, our Mistified revenue was approximately $300 million in 2021 and nearly doubled year-over-year. Our AI-driven SD-WAN solution, which combines the unique Session Smart Routing technology acquired by 128 Technology, with the automation and insights of Mist AI, is following in the same footsteps. We saw triple-digit year-over-year revenue and order growth in Q4, with key wins in various sectors like retail and banking and strong traction within the federal government. One new customer deployed 300 sites the week before Christmas, highlighting the ease and scale of the Juniper SD-WAN solution driven by Mist AI. With new product enhancements announced this month, including day 0 and 1 operation via the Mist Cloud, new SSR hardware platform, and bundled security capabilities, we expect demand to further build in future quarters. Of special note are the full stack, multimillion-dollar opportunities we continue to win and deploy where companies are turning to Juniper for a combination of their wired access, wireless access, and WAN Edge needs. Based on our recent order momentum, third-party validation, and the technical superiority of our AI-Driven Enterprise portfolio, I remain highly confident regarding the outlook for our AI-Driven Enterprise business during the upcoming year. While our Cloud-Ready Data Center revenue declined in Q4 due solely to the timing of shipments related to supply chain challenges, we experienced another quarter of encouraging order trend, driven by broad-based strength across verticals and geographies. We continue to see strong momentum with new logos, and we secured a record number of deals greater than $1 million. 400-gig momentum remains strong. We now have more than 60 400-gig data center wins that include cloud majors, large enterprise, and service provider accounts. Key to our continued growth in the data center is Apstra, the industry's leading intent-based networking solution that provides users with a superior experience versus our competitors across day 0, day 1, and day 2 operations. Apstra remains the only open-fabric management platform on the market, which is not only creating software-only management opportunities but also driving full stack data center wins. We're investing in sales enablement and the tools needed to accelerate our Apstra-driven success during the upcoming year. Customer interest in our Cloud-Ready Data Center portfolio is high, and we continue to be optimistic about the growth prospects for this business in the upcoming year. Our security revenue was essentially flat in Q4, but orders saw double-digit year-over-year growth. We remain confident in our connected security strategy and believe the convergence of networking and security provides us with a competitive advantage in the portions of the market where we are currently focused. We believe our technical strength in both security and networking will continue to provide tailwinds in future quarters and should enable us to grow our security business during the current year. I'd like to mention that our services team delivered another impressive quarter, and our services business continues to grow year-over-year due to record renewals and strong attach rate. Our customer satisfaction scores once again set new all-time highs, and our service margins came in better than expected due to higher revenue and lower costs. On a full-year basis, our service margins achieved a new all-time record of 65.8%, up 170 basis points as compared to the prior year. Our services organization continues to execute extremely well and is focused on driving incremental efficiencies through automation and cloud-delivered insights to not only create new revenue opportunities but also benefit margin and customer experience. Before I conclude, I’d like to state that our mission at Juniper is to power connections and empower change. Now, more than ever, we are committed to ensuring networking is a force for good in this world, that includes building global resilience to combat climate risk throughout our business and supply chain and enabling solutions for a low-carbon future. We continue to make, monitor and report our environmental, social, and governance progress through our annual corporate social responsibility report and CDP responses. Today, we are responding to the need for urgent and bold action. We are committing our global facility to be carbon neutral by 2025. You can follow our progress on our new climate web page, juniper.net/climate. I would like to extend my thanks to our customers, partners, and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders. I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail.

Thank you, Rami, and good afternoon, everyone. I will start by discussing our fourth quarter results and then cover the fiscal year 2021 and end with some color on our outlook. We ended the fourth quarter of 2021 at $1,300 million of revenue and non-GAAP earnings per share of $0.56, both above the midpoint of guidance. Revenue grew 6% year-over-year and 9%, sequentially, exceeding our expectations despite the challenging supply chain environment. These strong results were driven by solid execution by our global team. During the fourth quarter, we continued to see significant order growth across all verticals, geographies, and customer solutions. Gross orders saw a third consecutive quarter of greater than 50% year-over-year growth. Some of this order strength was attributable to ongoing industry supply chain challenges, causing certain customers to place orders early in an effort to secure supply when needed. Even after adjusting for these early orders, total part orders are estimated to have grown in the high teens year-over-year. Due to the strength in orders and the continued constraints related to component supply, we ended the year with record backlog of more than $1.8 billion. Looking at our revenue by vertical. On a year-over-year basis, Cloud grew 19%, Service Provider grew 8%, and Enterprise decreased 3%. While Enterprise revenue declined year-over-year due to the timing of shipments, Enterprise orders posted strong double-digit year-over-year growth and exceeded our expectations. Turning to customer solutions. On a year-over-year basis, AI-Driven Enterprise grew 29%, Automated WAN Solutions grew 8%, and Cloud-Ready Data Center revenue declined 9%. This decline was entirely due to timing of shipments, as Cloud-Ready Data Center orders experienced strong double-digit order growth year-over-year. Total software and related services revenue was $242 million, an increase of 41% versus the fourth quarter of last year. Annual recurring revenue, or ARR, grew 32% year-over-year, and we exited the year with $206 million in ARR. This strength reflects our efforts to transform to a more software-centric business. Total Security revenue was $162 million, flat year-over-year due to the timing of shipments, but product orders posted strong growth year-over-year. In reviewing our top 10 customers for the quarter, four were Cloud, five were Service Provider, and one was an Enterprise. Our top 10 customers accounted for 33% of total revenue as compared to 30% in the fourth quarter last year. Non-GAAP gross margin was 59.5% in the fourth quarter, which was above our guidance midpoint, primarily driven by a favorable product and software mix. If not for elevated COVID-19-related costs, we anticipate that we would have posted non-GAAP gross margin of approximately 61.7%. Non-GAAP operating expenses increased 8% year-over-year and 4%, sequentially. The higher-than-anticipated costs were due to a one-time $5 million expense related to the postponement of our sales kickoff event as a result of the recent surge of COVID-19 cases. We exited the quarter with total cash, cash equivalents, and investments of $1.7 billion. Cash flow from operations was $116 million for the quarter. We paid $64 million in dividends, reflecting a quarterly dividend of $0.20 per share. We also repurchased $148 million worth of shares in the quarter. Moving on to full-year results. Total revenue for 2021 was $4,735 million, which was up 7% versus 2020. Despite the pandemic and supply chain constraints, we saw growth across all of our verticals, customer solutions, and geographies. Our Cloud business grew 14%, while Service Provider and Enterprise both grew 4% compared to last year. From a customer solution perspective, AI-Driven Enterprise increased 27%, Cloud-Ready Data Center grew 7%, and Automated WAN Solutions grew 3% on a full-year basis. The top-line strength we experienced across verticals and customer solutions is driven by the technology investments we have made, as well as our focus on transforming our go-to-market organization. Total software and related services revenue was $761 million, an increase of 42% year-over-year, exceeding our expectations. Total Security revenue was $657 million, which grew 8% year-over-year. Security Product revenue was up 14% year-over-year. In reviewing our top 10 customers for the year, 5 were Cloud, 4 were Service Provider, and 1 was an Enterprise. Our top 10 customers accounted for 31% of our total 2021 revenue as compared to 30% in 2020. Non-GAAP gross margin expanded by 50 basis points versus last year, primarily driven by service gross margin expansion. If not for elevated COVID-19-related supply costs, we estimate we would have posted non-GAAP gross margin of approximately 61% in 2021. 2021 operating expenses increased 7% on a non-GAAP basis, primarily due to higher variable compensation and the costs associated with the acquisitions of Netrounds, 128 Technology, and Apstra. Despite these increased costs, operating margin increased to 15.9%, an improvement of 40 basis points versus last year. Non-GAAP diluted earnings per share was $1.74, an increase of 12% compared to 2020. For the year, we had cash flow from operations of $690 million, an increase of $78 million compared to 2020. We repurchased $433 million worth of shares and paid $259 million in dividends for a total capital return of 117% of free cash flow to shareholders during 2021. I'm very pleased with our financial performance, both in the fourth quarter and 2021. The performance is a testament to our team's dedication and resiliency through these challenging and dynamic times. Now, I would like to provide some color on our guidance, which you could find detailed in the CFO commentary available on our Investor Relations website. We expect first quarter revenue of $1,150 million, plus or minus $50 million, which is growth of 7% year-over-year. We are still experiencing significant supply chain-related headwinds associated with rising component and elevated freight costs, which are expected to continue at least through the first half of the year. While we have taken pricing actions to offset these headwinds, we do not expect these actions to have an impact until later in the year. Therefore, we expect first quarter non-GAAP gross margin of approximately 58%, plus or minus 1%, a sequential decrease. Our non-GAAP earnings per share is expected to be approximately $0.31, plus or minus $0.05, assuming a share count of approximately 332 million. Turning to our expectations for the full year of 2022. Given the strong order momentum we are experiencing and our exiting backlog, we are updating our revenue growth expectations for 2022 from at least mid-single digits to 7% to 9% growth. This guidance assumes the current supply chain environment remains constrained throughout the year, similar to current levels and does not further deteriorate. Beyond the first quarter, we expect revenue to grow sequentially throughout the course of the year. We expect supply chain constraints to be particularly tight during the first half and remain challenged throughout the remainder of the year. We also anticipate backlog to remain at elevated levels and largely unchanged throughout the year. While non-GAAP gross margin can be difficult to predict, we expect full-year gross margin of 58% to 60%, which is a slight decline from 2021 levels. We expect gross margin for the first half of the year to be at the lower end of the range due to the elevated cost of components and logistics. I'd like to mention that we see potential for non-GAAP gross margins to trend to the high end of the range in the second half of the year as volume increases and the pricing actions we have taken flow through to the results. We remain committed to disciplined expense management and full-year non-GAAP operating margin is expected to expand by at least 100 basis points versus 2021. That said, we will continue to invest to take advantage of market opportunities, and non-GAAP operating expense is expected to be up on a full-year basis, consistent with the guidance we provided during our third-quarter 2021 earnings announcement. Our non-GAAP tax rate on worldwide earnings is expected to be 20%, plus or minus 1%. And our non-GAAP EPS is expected to grow faster than revenue on a full-year basis. Finally, I'm pleased to announce we have declared a 5% increase in our quarterly cash dividend to $0.21 per share to be paid this quarter to stockholders of record. In closing, I would like to thank our team for their continued dedication and commitment to Juniper's success, especially in this challenging environment. Now, I'd like to open the call for questions.

Thank you. I wanted to follow up on the orders. Rami, could you talk a bit about the current situation? It's still above 50%, but it's down slightly from the previous quarter. What are you hearing from customers? Are they ordering less than before? How do you see new orders fluctuating and stabilizing? Additionally, what is your outlook for shipments for some of the larger companies? Lastly, could you address the Service Provider business, which seems to have improved this year? Many expect solid growth in the coming years, especially as you expand into the Metro Edge. Thank you.

Yes, thank you for the questions, Tim. To start, orders have been robust over the past year, with more than 50% year-over-year growth in the last three quarters. This strong order momentum continues, and we see significant opportunities across our key strategic verticals: Cloud, Service Provider, and Enterprise. While it would be great to guarantee over 50% year-over-year growth indefinitely, that isn't realistic. We have communicated that there has been an initial surge in orders over the past year, which we expect to gradually decline, though we’re unsure of the timing. However, on an adjusted basis, our organic order growth, which reflects the health of our business, will continue to expand this year due to strong demand and the differentiation of our solutions. Regarding the Service Provider sector, I'm pleased with our performance. Orders increased significantly in double digits during Q4, and revenue grew 8% year-over-year. We concluded 2021 with a record backlog in this area. Our success stems from a broad-based approach, not just with Tier 1 carriers in North America, but also with Tier 2, Tier 3, cable, and international accounts. The 400-gig opportunity extends beyond the cloud provider space and we are currently capitalizing on substantial opportunities in the Service Provider segment, particularly in the core area, which should positively influence our future revenue. Lastly, regarding the Metro segment, it stands to gain the most from the ongoing 5G RAN deployments, which is why we’ve chosen to invest strategically here. While we don't have a complete portfolio yet, the indicators suggest we are on the right track. For context, our Metro-focused aggregation switch, the ACX family of products, achieved a $100 million bookings run rate for the first time in Q4. This solution, which I expect to complete by the end of this year, is a promising data point, indicating that we should experience positive momentum from the Metro opportunity later this year and especially into next year.

I guess, I wanted to ask about your pricing increases. I heard what you said in terms of the timing of those coming in later in the year. But can you just talk about customer receptivity? I would imagine that some of your Enterprise customers are a bit easier in terms of taking pricing, but maybe more of a negotiation on Service Provider and Cloud. Can you just kind of walk through what you're seeing there?

Yes, thanks, George. What you're thinking is mostly happening. We did implement the pricing increases last year that we mentioned. I would say customers are not pleased about these price hikes, which is expected. However, they do understand the situation. In most cases, we have been able to carry out the pricing actions as planned. Overall, I feel positive about our efforts and the market's response. This should benefit us as we expect to see more of it reflected in our top line during the second half of this year.

Got it. And then, the Service Provider and Cloud Provider pricing negotiations, so I guess, to underline this, they are accepting higher pricing from you guys. Is that fair?

Yes, it is fair. I mean, we are doing it deal by deal and sometimes customer-by-customer situations, but we are seeing acceptance across the board.

Can you provide any insight on whether the pricing increases you implemented starting in the second quarter of last year are having a positive impact on your performance earlier this year?

Yes. So, we did an action in the first half of last year around June. There was a partial action, if you will. It didn't impact all of our products. The action we took in Q4 was more expansive and impacted all of our hardware products. So, we did take two actions. We are seeing some of the realization from the first action, but the second action was, I think, would be more impactful for us.

I want to see if maybe you could unpack the cloud vertical a bit more in terms of maybe some color on the behaviors of what you guys have termed the cloud majors as opposed to the hyperscalers. Just give us some sense of what the contributions are like and if there are differences in their trends. And just as an easy follow-up, within the forecast of 7% to 9% sales growth, how much of that are you assuming is coming from the price increases?

Thanks for the question, Simon. Let me start on the question around the cloud, and then I'll hand it over to Ken to talk about the contribution of price increases to our revenue growth this year. So, I'm delighted with the momentum we continue to see in our cloud vertical. I think the thing that I like the most about what we're seeing in this area is the diversity of the success that we're seeing, not just within the hyperscalers and the cloud majors or between those two, but within each of those categories. So, in hyperscalers, we traditionally, as you all know, had a very large customer that generated a lot of the growth over the last several years. It's now really much more distributed across a number of significant hyperscale accounts. And I think that speaks to the strength of our footprint, the strength of our technology and the engagements, the solid engagement that we have with the hyperscale accounts. We have, in addition to hyperscale, been very much focused on broadening within the Tier 2 cloud provider space or what we call the cloud major space, and we've made really great progress. The good news is, much of the technology that we develop for hyperscale applies very much to cloud majors, including a lot of the 400-gig wide area networking and data center investments. But in addition to that, our automation portfolio, so the Apstra technology that makes the act of developing or deploying and running a data center very simple now actually has strong applicability to our cloud majors segment. So, it really is strength across the board, and I'm delighted to see the momentum that we have here.

Yes. Regarding the pricing action, we took that into account when we provided our guidance of 7% to 9% growth this year. While we haven’t specified the exact amount, the main purpose of the pricing action was to offset as much of the price increases as possible. This approach is primarily about protecting our margins and addressing some of the margin challenges we face. It will lead to revenue growth, of course, and is included in our overall guidance.

I have just one quick follow-up question before I ask my other question. The F5, when they reported, they said that there was a further deterioration in the last 30 days of the quarter when it comes to getting specialized networking gear like FPGAs and CPUs and others. Do you see the same deterioration in the ability to source supplies components, or do you see the same environment today as it was before?

Yes. We haven't seen anything notable in the last 30 days. I would say we've seen pretty constant supply constraints for the last few quarters, right? So we have seen, I'm not going to say it's a good environment. It still remains constrained, but we haven't seen anything noticeable in the last 30 days. We expect lead times to remain extended we expect the cost obviously is definitely going out on the cost of components, et cetera. The one thing I would point out, although we comment that it's going to be remain contained for the year, particularly in the first half, we do believe we have line of sight to absolute volume increases year-over-year, right? I mean, we're guiding to a full-year growth of 7% to 9% revenue growth. So, at this point in time, even with the constrained environment, and we're not getting as much supplies as we would like to get, we do believe we're getting enough to satisfy that revenue outlook.

Got it. I want to ask you about market share, specifically in routing. So, the environment is getting better. You spoke about new products in certain areas. Can you talk about, maybe break it down, your expectations, areas where you expect to gain share in routing and areas where you don't expect market share like unique market rate dynamics? And I'm referring to end markets, like Cloud, Enterprise, Service Providers, Cloud, etc.

Right. I want to make sure I understand the question. Are you referring to the Service Provider segment specifically and then sort of different layers or opportunities within the Service Provider space? Are you really talking about Service Provider, Cloud, and Enterprise as three separate segments?

We can take it anywhere. I'm looking to address the routing market, which has been stagnant for many years, and I anticipate a shift now. I'm attempting to analyze the situation and identify the areas where you foresee growth and market share increases, as well as the areas where market conditions are likely to remain consistent.

Got it. Got it. Okay. And specifically to routing. So, in routing, whenever you're talking about routing, you should really be focusing on two market opportunities in particular, and that's Cloud and Service Provider. There is obviously also routing that goes into the Enterprise space, but I think our key focus is on Cloud and Service Provider. The big inflection point that's happening right now in both of these segments is around 400-gig. And that is an opportunity for us to take share in that area. But in addition to that, specific to the Service Provider is the Metro opportunity. So, let's talk about 400-gig. I want to be very clear. I am very confident, based on order momentum, right, not yet seen in revenue because it's still early days in terms of shipping and deployments and building out these networks, but in terms of actual order momentum, where we've seen well over 50% growth for the last three quarters, we're taking share. I am very confident we're taking share. And now add to that in the Service Provider space, the Metro, where there is no way but up for us because it's essentially a brand-new market opportunity for us. It's the fastest-growing subsegment of the routing opportunity within the Service Provider space because that's where most of the 5G traffic needs to flow through. That is another area where I'm very confident we will take share, especially as that portfolio comes together throughout this year.

Yes. To begin with, I've got a broader question with respect to share gain versus market growth. And I appreciate it's hard to delineate, if not impossible. But the strength you've been referencing across every aspect of your business, Rami, Ken, how much of that do you attribute to a confluence of very strong trends with networking in virtually all of your customer markets, albeit of a different nature? And how much of that is the fact that in a number of cases, such as with Mist for wireless LAN, as well as the pull-through impact on other products? How much of it is a function of share gain? Any insight you can offer there before I have my follow-up?

So Paul, I think you touched on the one area, the AI-Driven Enterprise and Mist within that area, where I believe our competitive differentiation has never in the history of this company been this strong. And the order growth rates have been phenomenal. Even in revenue for the Q4 timeframe, we posted strong revenue results. And for the full year, we've shown strong revenue results, even in the face of very difficult supply chain challenges that we have had to overcome. There are a couple of key reasons for this. One is the strength of the technology, and we're sitting on some true underlying architectural differences in how we have built these solutions using a scale-out cloud-native architecture that can scale to the largest enterprises in the world, exceptional leadership, and really solid sales execution because we've invested in our sales, in our channel, and our enablement team. So, again, very confident that we are taking share. And I honestly think that that share taking can accelerate as more of those orders that we posted translate to actual revenue and we start to draw down the huge backlog that we built.

Rami, regarding the enterprise segment, considering your remarks, there are different details but similar strength observed. Cisco, as the largest incumbent, has expressed strong confidence in their business as well. Looking beyond 2022, there are significant developments in the enterprise market. This situation may reflect the prolonged indecision we saw when many enterprises were uncertain about their cloud strategies, specifically how many applications to retain on-premises and how much to transition to public clouds. This indecision created a significant pause in enterprise decision-making concerning network architecture and deployment. Are we now witnessing that the industry has moved past this pause? Are you and your peers observing a multi-year investment cycle as enterprises catch up, in addition to the market share gains you have mentioned?

Yes, that's a great question. I’ll break it into two timelines. Over the last couple of years, certain segments of the Enterprise were impacted by COVID and faced headwinds. However, we successfully shifted our focus to subsegments that not only remained stable but, in some cases, increased their investments. For example, big box retailers, college campuses, and the public sector saw a heightened need for strategic networking, and we capitalized on that with our unique solutions. Looking ahead, as things gradually normalize, I believe enterprises and their CIOs and CTOs will not be eager to return to the complex legacy on-prem solutions of the past. Instead, they are searching for cloud-based, AI-driven solutions and simplified data center operations. I genuinely think we are well-positioned to take advantage of these changes. Therefore, I believe that the positive developments in the Enterprise sector will only grow stronger in the future compared to what we've encountered in the last couple of years, particularly regarding market tailwinds.

Look, great quarter. I'm not going to try to pick on something, but the one part we could is data center and security a little bit with security being roughly a quarter of that data center product business. The security space hasn't been this strong in terms of the spending environment since arguably 2015. And I get orders are growing very nicely. But why is this business as well as the switching side within that data center business really not growing faster? Is it just prioritizing the other segments given higher cloud and service provider mix? And is there any way to break out what you would have grown in these segments this quarter, excluding the supply chain issues versus do we have a demand issue for Juniper security specifically?

I believe your question is about both data center switching and security. Let me first address the second part. Everything would have grown without supply chain constraints. We face limitations in what we can ship, which obviously impacts our revenue. Our data center switching business is doing well, with orders growing consistently in double-digit percentages throughout last year. We saw revenue growth for the full year as well. However, our revenue in the Cloud-Ready Data Center declined in the fourth quarter due to the timing of orders related to the availability of specific parts in this challenging supply chain environment. I'm not worried about demand or the solutions we offer to meet that demand and compete with our industry peers. Regarding security, we can look at it from two perspectives. One is the broader, mainstream security linked to our enterprise offerings, which has seen solid growth. The other is a larger high-performance security segment characterized by substantial, high-performance products like our high-end SRX product line, which tend to fluctuate from quarter to quarter. We observed some of that in the fourth quarter. Nonetheless, the overall health of our security business is reflected in product orders, which have also grown significantly in double digits.

Yes. The only thing I would add on the security front is if you take the full-year view, in our product business, security business grew 14%. So, you are seeing this kind of an anomaly in any given 90-day period with the Q4 results. We're pretty pleased with the overall security performance throughout the course of the year.

First off, I want to commend you on how you've addressed the duration question compared to new gross orders. It's much clearer than how many other companies present it. It's also encouraging to see the acceleration from about 15% adjusted growth to the high teens. My question, however, revolves around the increase in the full-year guidance. Considering you've already accounted for the price increases from last year and that there's been no change regarding supply chain commentary, despite strong order growth, you are still constrained by supply. So, my question is what permits you to raise your growth and revenue expectations from mid-single digits to 7% to 9% if availability isn't improving? Is this due to software growth being significantly higher or a shift in your expectations? Or is it related to a mix change or redesign? What justifies the revenue increase of 2% to 3% without an alteration in the outlook for supply chain improvements?

Yes, thank you for the question. Our revenue guidance for 2022 of 7% to 9% is clearly limited by supply. If we had access to more supply, the guidance would likely be higher, considering the strong demand and the backlog we have built. It is a forecast constrained by supply. We have maintained our stance that the supply chain will continue to face challenges. However, our confidence in securing the necessary supply for the year has improved. Previously, we were anticipating at least mid-single digits, but after reviewing our assumptions over the past 90 days, we now feel more confident in stating 7% to 9%. Therefore, we've raised the guidance from at least mid-single digits to 7% to 9% based on our increased confidence in our ability to procure the supply needed to reach that revenue target.

Thank you. I wanted to revisit something you mentioned earlier, Rami, regarding the Metro opportunity and solution set. Could you elaborate on this? What will telcos, cable companies, and other service providers need for this? What specific additions are you considering for the portfolio, and can you help us understand why this isn't fully operational yet and where it's headed? Additionally, regarding Apstra, I believe you noted that some of your cloud customers are using it. Could you explain if this could be extended to all your customers? Please help us clarify these two points.

Absolutely. Thank you for the excellent questions, Sami. Regarding the Metro opportunity, specifically what we need, we have outstanding routing technology and a fantastic routing stack. Our Junos and Junos Evolved operating systems are essential components. What we require are optimized systems in terms of price and form factor to capitalize on the end-to-end Metro opportunity. In this context, we are deploying platforms closer to residential and business customers. From a technology development perspective, this is relatively straightforward since we already possess many complex elements. We merely need to optimize them for the specific opportunity with regard to power and form factor. This is exactly what we are doing. The reason we didn't pursue this earlier was due to our investment priorities being directed elsewhere, but now we are positioning ourselves for it, especially with the rise of the 5G opportunity. Additionally, it's crucial to note that there is also a software and management component for day two operations that we are excelling in due to our experience with Mist in the AI-Driven Enterprise and more recently, Apstra in the data center. This brings us to the second question regarding Apstra. Currently, Apstra is mainly focused on the data center, where the bulk of our business and deployments exist, although we do have some opportunities in campus networking and other areas. However, the data center remains the primary focus. Apstra is the only open management solution for data centers in the industry and offers the best operational experience. They pioneered intent-based networking and provide high scalability that caters to the largest customers globally. This unique differentiation allows us to secure more comprehensive data center and software opportunities. While we may eventually consider expanding Apstra's reach beyond the data center, my immediate focus is firmly on the data center opportunity. We face strong competition in this space, and it's vital for us to ensure we deliver the best solutions for our customers.

Yes. So supply constraints are really across the board, and you are seeing ebbs and flows as we solve a particular problem; maybe another problem pops up. As it relates to MX specifically, you could see from the revenue results anyway, Q3 was actually down overall in kind of our SP business, and Q4 was up. So we did ship more in Q4 than we did in, say, Q3. But that's going to vary quarter-to-quarter based on the timing of orders, but more importantly, the timing of supply. So I don't feel there's a unique supply constraint or situation with our MX line cards. It really is kind of across the board, across all of our products and solutions.

I just had a question on the operating margin expansion. Some of the companies we talked to indicated that there are rising compensation costs for '22 to retain employees. Is that included in your guidance for at least 100 basis points of expansion?

Yes. So, we have factored in our total operating cost expectations for 2022, not only for investment purposes but also retaining employees. So yes, that is factored into our plans, including our expansion plans to expand operating margin.

This is Michael Fisher on for Amit. Thanks for taking my question. I was curious that you mentioned gross margins would have been 61.7%, I think, without COVID-related cost, so about 220 basis-point delta versus what you reported. I'm wondering, is there any way to kind of break down that 220 basis points between input cost inflation versus other factors like freight or anything else that's having an impact?

Yes. So, I'll tell you that both, freight is a big chunk of it, as well as just component costs and expedite fees. So I would categorize component costs and expedite fees as kind of the same bucket. If you look at that as a combined group versus freight, both are effectively equally impactful to that number.

This is Erik on for Meta. I guess, just when we look at the strength in Automated WAN, if we can go back to that, was any of that driven by new web-scale customer projects you've noted, or is that mostly from existing customers? And I guess, if a new customer, would there be any project-based volatility that we should be mindful of?

Yes. It's actually a great question. I think a lot of the strength and the momentum that we've seen over the last year has actually been more driven by existing footprint, existing deployments that we have within both our service provider and our cloud customers. But having said that, we have been competing for and winning new 400-gig opportunities in both segments. And we alluded, I think, starting a couple of quarters ago, to a fairly large hyperscale cloud provider WAN, in other words, routing win. Those opportunities might have contributed to some extent to our orders and to our backlog but not yet to revenue. So, the quick summary is most of the strength and the momentum thus far has been existing footprint, but great win that will continue to give us tailwinds throughout this year and next year as those opportunities start to actually deploy.

Thank you. Following up on that topic, I actually was going to ask directly about that. I remember a few quarters ago, Rami, you were very excited about some hyperscaler lab work and design wins and such. And I was going to ask you about the time line of that. Is it typically like a 12-month and then we start to see revenue recognition? Is it longer? Does COVID kind of play into some of those hyperscale, what I would consider new greenfield customer and relationships? I'm just trying to calibrate expectations for when we start to fold that into your revenue model. Thank you.

Yes. I think it's fair to think of this as deployment will happen throughout this year, probably more in the second half of the year. Typically, the sequence of events is there's a testing period as part of an RFP process. There is winning the opportunity and then there's a certification period where you work closely with the customer to do use case-specific testing and getting it ready for early feed trials and then ultimately into deployment. So, maybe sort of second half of this year time frame. And that's typically true of most large-scale WAN wins, whether they be in the cloud provider space or the service provider space. Okay. I want to thank everyone for their time and interest, as well as the trust you have placed in me and my management team. I hope you can see our confidence in our prospects for delivering revenue growth and profitability, not just this year but in a sustainable manner. Thank you, and we'll talk soon.