Greetings, and welcome to the Juniper Networks' Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn this conference over to your host, Mr. Jess Lubert, VP of Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and welcome to our third quarter 2020 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 on 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. Please limit yourself to one question and one follow-up. With that, I will now hand the call over to Rami.

Good afternoon, everyone. Like many of you on this call, we're continuing to navigate the COVID-19 pandemic and take actions to both meet the needs of our customers and ensure the safety of our workforce. Most of our employees are continuing to work from home and successfully leveraging the various technologies enabled by the network to maintain a high level of productivity, despite the current environment. To this last point, I'd like to reiterate my belief that the strategic importance of the global network has never been clearer and the long-term outlook for the markets we serve remain positive. We are investing not only to survive the current environment, but to capitalize on the opportunities our markets present, and to come out stronger on the other side. Now on to our results. We delivered solid results during the September quarter with revenue of $1.138 billion exceeding the midpoint of our guidance due to better-than-expected results in our service provider and enterprise verticals, both of which grew year-over-year. Upside in these areas, more than offset some lumpiness with our cloud customers. Non-GAAP earnings per share of $0.43 was in line with the midpoint of our forecast. Orders once again exceeded our expectations, particularly in our enterprise business, which saw double-digit order growth year-over-year, despite the challenging macro backdrop. We're executing well in the current environment. We firmly believe we are taking share, and that our technology differentiation along with our investments and go-to-market are enabling us to win at a time when challenging market conditions have adversely affected our competitor. Our momentum is strong entering our fiscal fourth quarter, and this momentum is increasing my confidence that we will be able to grow the business on an organic basis for the full year 2021. With that said, I'd like to touch a bit on our strategy and some of the actions we are taking to win the next decade of networking. Specifically, at the beginning of this year, we focused our sales teams, product management teams and engineering teams on compelling and differentiated use cases, targeting the AI driven enterprise, automated WAN solution and cloud-ready data centers. We believe each of these use cases is likely to see very attractive market tailwinds over the next several years. And focusing our resources on these specific areas should enable us to accelerate our growth as these opportunities unfold. It's worth mentioning that each of these use cases span across the three industry verticals that we target, and by focusing our resources on these areas, we should have the opportunity to speed time to market, accelerate share, and leverage development costs across a wide base. While this alignment should position us to better capitalize on big opportunities like the move to AI driven cloud managed architecture, 400 gig and 5G in the years to come, the early feedback from our teams has been incredibly positive, and we’re already starting to see the benefits of this alignment, which you'll hear me discuss more in future calls. Now I'd like to provide some additional insights into the quarter and address some of the key developments we are seeing within each of our core verticals. Starting with the enterprise, we are particularly encouraged by the improved momentum we're seeing as this business experience double-digit sequential growth and slightly grew on a year-over-year basis. We saw improved momentum in the U.S. and Asia, which more than offset weakness in Europe. Order growth was solid and exceeded our expectations, particularly in the North American enterprise and U.S. federal vertical. Based on our results, we believe we are taking share, a dynamic we expect to continue in the future. Our optimism is fueled by the customer response to our AI driven enterprise vision, which we began executing to early last year. This effort started with an investment in go-to-market headcount, and it was followed shortly thereafter with the acquisition of Mist Systems. These moves have not only enabled us to broaden our reach, but also added some game-changing AI and cloud management technology, which we are extending across our enterprise portfolio. The Mist Technology is truly differentiated and has enabled our customers not only improve network performance, but also to capture material operational savings and deliver significant improvements in end user experience. The differentiation of Mist, which has been extended to our wired offering, can be seen in the order of momentum I mentioned this quarter. To this point, Mist reported another record quarter with new logos once again growing more than 100% year-over-year and orders rising more than 180% year-over-year. We also saw a very strong adoption of our Mist Wired Assurance capabilities and corresponding pull-through of our EX switching portfolio, which positively impacted orders in the Q3 timeframe and should benefit revenue on a go-forward basis. To this point, joint Mist and EX orders exceeded $200 million annualized run rate in the Q3 timeframe. Our investments in go-to-market are beginning to payoff, and we are also seeing positive momentum in the channel, both of which are creating optimism that the success we have been seeing is likely to continue in future quarters. Our agreement to acquire 128 Technology represents the next step in our AI driven enterprise evolution. 128 Technology is truly unique and offers customers material benefits over any alternative SD-WAN solution today. Some of the benefits include much lower hardware costs, much lower latency and significantly lower bandwidth costs. In addition to these benefits, customers will see application performance improve and users will receive a better overall experience. 128 Technology user-centric SD-WAN is a perfect complement to our AI driven enterprise solution, delivering market leading insights and automation from clients to cloud. I expect our enterprise momentum to build in accordance to come and believe this business is positioned to not only grow organically and take share in 2020, but also in 2021 and beyond. Our service provider segment also saw very healthy results in the September quarter, growing 5% year-over-year, despite ongoing challenges from a supply chain perspective. Although we are continuing to see some COVID-19 related capacity benefits, we believe the primary driver of the service provider strength we are seeing continues to be our efforts to diversify this business across customers, products and geographies. Similar to Q2, we continue to benefit from the strength with our U.S. cable customers as well as Tier 2 and Tier 3 carriers in international markets. We also saw solid demand for our switching products in addition to our routing solutions. While we did see some weakening in our SP security business, we believe this was a function of timing. I would note that the pipeline here remains strong. Our diversification efforts are only likely to strengthen as we increasingly target access aggregation and metro routing opportunities, and introduce new software-centric testing and automation capabilities acquired through Netrounds that further enhance our ability to win in these growing areas of the routing market, where historically we hadn't played. Based on Q3 results and Q4 pipeline, we continue to believe our service provider business is likely to see a mid single-digit decline in 2020. While we acknowledge some of our service provider customers that are continuing to face business challenges that may impact their ability to spend in future quarters based on our recent momentum and customer conversations, we believe this business has the potential to further stabilize in 2021. Our cloud business came in slightly weaker than we originally expected. We believe the decline on both a quarter-over-quarter and year-over-year basis was largely a function of lumpiness following five consecutive quarters of year-over-year growth. We believe this lumpiness reflects normal customer consumption patterns. Our Cloud backlog remains healthy and we believe the general spending outlook from a hyperscale and Tier 2 customers remains favorable. We believe we are holding our win footprint and are increasingly optimistic regarding our potential to gain data center share in the years to come, while we now believe our Cloud business is likely to be flat to slightly up for the full year 2020. We remain confident in our ability to grow this business in 2021 and beyond. Importantly, we're continuing to make progress on 400-gig with additional wins and strong pipeline of opportunities in both our Cloud and Service Provider segments. While many of our wins are addressing wide area of use cases, where we are historically been strong, we've also secured net new Switching opportunities including a design win with a Top 10 cloud provider. We continue to expand our 400-gig product set and deliver new features needed to gain share in this critical market. We believe we have the right product and customer engagement to both protect our wide area of footprint and capture switching share as the 400-gig cycle unfolds across our cloud and carrier customers in years to come. We continue to expect the 400-gig opportunity to begin in earnest next year with the revenue starting to become material during the second half of next year. Our Software revenue represented less than 10% of sales for the second consecutive quarter, due to a lower mix of certain products that drive higher on-box attach rate of perpetual licenses. That said we continue to see strong adoption of our Mist and Security subscriptions and our efforts to transition certain perpetual software offerings to term-based subscription are beginning to drive improved results. We believe growth in these recurring software offering is an encouraging dynamic that should improve the visibility over time and give us confidence in the long-term outlook for our software revenue. I'd like to mention that our Services team delivered another solid quarter and continued to grow on a year-over-year basis due to strong renewal and service attach rates. Our Services team continues to execute extremely well and ensure our customers receive an excellent experience. 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 third quarter results and then provide some color on our outlook. We ended the third quarter of 2020 at $1.138 billion in revenue, above the mid-point of our guidance range. Non-GAAP earnings per share of $0.43 was in line with the mid-point of our guidance. Revenue was up slightly showing year-over-year growth for the first time this year, while lead times improved on a sequential basis, we continue to experience supply constraints and lead times remain extended on certain products due to the COVID-19 pandemic. Looking at our revenue by vertical, on a sequential basis, Service Provider and Enterprise grew while Cloud declined as expected. On a year-over-year basis Service Provider grew 5%, showing year-over-year growth for the first time in 13 quarters. Enterprise grew slightly and exceeded our expectations. Strength in our Service Provider and Enterprise verticals more than offset a 7% year-over-year decline in Cloud. We saw revenue in all geographies grow on a sequential basis. From a technology perspective on year-over-year basis, Routing increased 6%, while Switching decreased 5% and Security decreased 23%. Our Services business grew 4% 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 31% of our total revenue as compared to 34% in the third quarter of 2019. Non-GAAP gross margins were 59.0%, which was below our expectations primarily due to mix. If it weren't for elevated logistics and other supply chain-related costs due to COVID-19 we would have posted non-GAAP gross margin of approximately 60%. Non-GAAP operating expenses were down 2% year-over-year and flat sequentially, which was in line with our guidance range. Our operating expenses in the third quarter benefited from COVID-19 related savings. Cash flow from operations was $116 million. We paid $66 million in dividends, reflecting a quarterly dividend of $0.20 per share and repurchased $100 million worth of shares in the quarter. Total cash, cash equivalents, and investments at the end of the third quarter of 2020 was $2.6 billion, essentially flat from the second quarter. Now I'd like to provide some color on our guidance, which you can find detailed in the CFO Commentary available on our investor relations website. As a reminder, our guidance includes the impact of the acquisition of Netrounds but excludes any impact from the pending acquisition of 128 Technology. At the mid-point of our Q4 guidance we expect to see sequential revenue and earnings growth. Confidence in our forecast is driven by strong backlog and healthy momentum. Our Q4 forecast assumes sequential growth in our Enterprise and Cloud verticals and a slight sequential decline in Service Provider. We expect to see sequential volume-driven improvements in our non-GAAP gross margin. In addition, we expect logistics and other supply chain-related costs due to the effects of the ongoing pandemic to remain elevated but slightly lower than Q3 levels. We expect fourth quarter non-GAAP operating expense to be modestly up from Q3 levels. We will remain focused on prudent cost management while continuing to invest to capture future opportunities. We expect non-GAAP Other Income & Expense, or OI&E to be an expense of approximately $15 million on a net basis in Q4 and remain at this level in future periods. The expected negative impact on OI&E is due to the lower interest rate environment, our capital return initiatives and recently announced acquisitions. Turning to our capital return program, our Board of Directors has declared a cash dividend of $0.20 per share to be paid during the fourth quarter. We remain committed to paying our dividend and will remain opportunistic with respect to share buybacks. While there is a lot unknown about the future due to the pandemic and other macroeconomic uncertainty before we move on to Q&A, I would like to provide a few comments on our outlook for 2021. Presuming no further COVID-19-related economic deterioration, based on the current momentum we are seeing and the investments we are making to capitalize on the opportunities ahead, we expect to return to organic revenue growth on a full-year basis in 2021. Assuming the pending acquisition of 128 Technologies closes, we expect nearly a point of additional revenue growth, which we would expect to be weighted towards the second half of 2021. We expect full-year 2021 non-GAAP gross margin to be approximately 60%, up from 2020 levels. The improvement is expected to be driven by increased volume, software sales and our value engineering efforts. We also expect to see a gradual reduction in COVID-19 related costs through the course of 2021. As a reminder, our gross margin tends to be seasonally lower in Q1, with gradual volume-related improvement throughout the course of the year. We expect 2021 non-GAAP operating margin to be approximately flat year-over-year as improved gross margin will be offset by increased costs related to the pending acquisition of 128 Technologies, the gradual normalization of COVID-related savings, and targeted investments to capitalize on growth opportunities ahead. Due to lower cash and investment balances, combined with lower investment yields, we expect a negative impact to non-GAAP OI&E in 2021. We expect non-GAAP EPS to grow slightly faster than revenue. Our long-term financial objectives have not changed. We plan to deliver sustainable revenue growth, improved operating margin and earnings expansion over time. 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.

[Operator Instructions] Our first question comes from the line of Ittai Kidron with Oppenheimer. You may proceed with your question.

Thanks. Hey, guys. Nice quarter. A couple of questions for me. First on the switching side, you've talked about the progress clearly of your campus, which is we’ve missed that you're seeing a pull through, but the overall category was still down 5%. Should I interpret this to mean that the data center switching was weak in the quarter? If you can give us some color around that. And then second question is around the macro. i mean, clearly you sound more confident here heading into towards the end of the year, and that's great to hear. But we are starting to see second wave kind of shutdowns happening in Europe, here and there on a selective basis, perhaps not as extensive but nonetheless happening in Europe. Can you give us some thoughts on what are you hearing from your people over there and how you've incorporated that potential risk into your outlook?

Yes. Thanks for the question, Ittai. I'll address both of your questions, and maybe Ken will add some additional color on the macro question. The short answer to the switching question is that, no, actually data center momentum has been quite strong for us. So why is it that we saw 5% reduction or year-over-year decline in revenue for switching, it's entirely or the vast majority of it is due to the dynamics around large hyperscaler deployment of our switching technology in wide area use cases. If you look at our switching performance in the data center for both enterprise and service provider, it's actually up and up meaningfully. So we're actually quite encouraged with the products, the technology that we're offering as well as the momentum we're seeing in the market. And I think our focus on solutions for the data center in both the telco and the enterprise is actually paying off for us. On macro, certainly we're not immune to major disruptions, second wave issues and so forth. But thus far we have been quite encouraged with the momentum, the order strength we're seeing in all of our verticals business, particular in service provider and the enterprise in the Q3 timeframe. I think at this point our visibility is good enough to say that in the service provider space we can see mid single-digit declines all up for the year, which is actually meaningfully better than last year. In the enterprise expect to see growth for the full year now based on the momentum and the visibility that we have, and cloud provider, flat to low single growth is actually very much realistic, again, considering the momentum today as well as our outlook for the rest of the year. And Ken will add.

Yes. I mean, I would just add, to 2021, obviously there's a fair amount of uncertainty. But our current working assumption is we're presuming no further economic deterioration and the macro environment remains roughly the same in 2021 as it did in 2020. So we're not presuming it gets materially worse nor materially better throughout 2021. That's really our base case assumption right now.

Very good. Good luck, guys. Thanks.

Thank you.

Thank you.

Our next question comes from the line of Rod Hall with Goldman Sachs. You may proceed with your question.

Yes. Thank you for the question. I have two actually regarding kind of forward sales. So I wanted to ask you what the ACX pipeline is looking like. And if you were to gain footprint wins there, particularly in Europe, what you think the timing on that might be? Would it be middle of next year? Would it be earlier? Just kind of curious how that sales pipeline is developing for ACX. And then secondly on higher speed MPC line card, I wonder, could you talk about how far through the upgrade process you are out there? Like how much runway you think you've got in terms of higher speed MPC upgrade? Thanks.

Yes. Thanks for the questions, Rod. So both questions are actually pertaining to our automated WAN solutions use cases that we're addressing. In the ACX specifically, this is a product that addresses our metro end-to-end use cases. We're still in the early stages of completing that solution. And what we have is the initial ACX product or modern product that we just introduced into the market, the ACX710; that actually has very encouraging early momentum. That coupled with some of our MX portfolio, some of our older ACX product line, and very importantly here is the solution that we're gluing together with end-to-end automation through some of our organic efforts, smart partnerships and then very recently our acquisition of Netrounds, which is an end-to-end assurance solution for our service provider customers in particular. I think that's starting to come together and we're starting to see early momentum, but it's still early days. And I expect that by the time we get into next year, probably second half next year, we'll have enough of the solution that we should see a bit more momentum. On your question around MPC, it took us quite some time to get the MPC products that we had introduced into the market now a while back. These are line cards for the MX product line complete in terms of the features required for use cases that the majority of our service provider customers were interested in. That's mostly behind us at this point. Then there's a certification cycle. Now we are actually starting to see some decent revenue ramp still early, but I expect that to continue to benefit us in the future. And in fact, some of the optimism we have about further stabilization in the service provider business is a result of the fact that we have these newer products that we're now selling to our customers.

Do you have any percentage sort of estimate on how far through that revenue opportunity you're on the MPCs, Rami? Or I mean, is it sort of 10%? Or is it – are you further through it? Can you give us any idea?

All I will say at this point is that it's still fairly low as a percentage of total MX business, whether it's orders or revenues, still very low.

Great. Okay. Thank you very much.

Our next question comes from the line of Paul Silverstein with Cowen. You may proceed with your question.

Thanks guys for taking the question. Can you discuss what you're seeing in terms of pricing in both the service provider and the cloud markets? And also a broader question for both of you in terms of the competitive dynamics that you're seeing your position relative to – obviously relative to Cisco, but also relative to the other competitors out there in particular and switching Arista and HPE, I recognize it's an awfully big market and you're still a small part of it. So you may not be coming across – the competitive aspect may be less rather than more, but I am curious what you're seeing and I have a follow-up.

Yes. So I'll touch on the pricing part and pass to Rami for the competitive aspect. But on the pricing front, we're not seeing a material change, Paul. I mean, as you know, the pricing has always been competitive in this industry. You do see price erosion on a per bit basis, year-to-year, and we're not seeing anything unusual in the pricing curve going forward. So really nothing to note from a chain perspective on the pricing front this quarter nor in our future plans.

And just to answer your question, Paul, about the competitive dynamics. I mean, we obviously have always been in a very competitive environment, competitive landscape. I like to think about our competitive differentiation from a use case standpoint. So if you look at the AI driven enterprise, where Mist is this overarching cloud solution that delivers manageability and assurance to enterprises, I really am very pleased with our win rate. The fact that we have a solution that is highly differentiated, that's resonating with many of our customers. And especially in a macro environment that is more challenging, in the enterprise space, having this kind of differentiation is essentially what is resulting in the momentum that we're seeing in the enterprise with double-digit order growth on a year-over-year basis. And second to solutions, automated WAN solutions in particular, which is around service providers, cloud providers. I really think that we have a compelling portfolio of products, especially for the 400 gig space with our network operating system capabilities with Junos Evolved, and an automation framework that includes things like HealthBot and NorthStar SDN controller, and now Netrounds, that's really coming together nicely. Metro, that's going to fill out in time. I just answered that question as that's an area where there are going to be some certain select opportunities that we can compete based on the completeness of our portfolio today. But I feel confident with the investments that we're making now that it's going to become a much easier opportunity for us to capture in time as we build out that portfolio. Cloud-ready data center momentum there is really strong again, based on the merits of our merchant and custom silicon based products, as well as the automation solutions that we offer our customers today that actually will even get stronger in time. But I feel very good all up about the technology that we're offering, the customer engagement that we have across all of our segments.

And Rami, just to be clear, you alluded to in your remarks, but the weakness you're citing with cloud that is not due to share loss or due to intercepted deals by your competitors. You're not seeing that.

No, that's not what we are seeing. It's really just timing of deployments across a few of our large cloud provider customers. And if I look more broadly at our cloud segment into Tier 2, Tier 3 cloud, actually the momentum there is quite solid.

Our next question comes from the line of Sami Badri with Credit Suisse. You may proceed with your question.

Hi, thank you. I just wanted to touch up mainly on the quarterly results and just put into perspective some of the other results that you guys have reported earlier this year in 1Q and 2Q. Just maybe if we could get an idea, you talked about in prior quarterly results how there were some unfilled opportunities mainly tied to do – mainly tied to supply shortages. Now, when we look at the 3Q results and we think about the roadmap for 4Q, how much of 3Q and 4Q would catch-up from opportunities that were missed in 1Q and 2Q or just were a bit behind? And how much of this is essentially net new or I guess you'd say more productive sales generation rather than just like fulfilling orders that were already in the pipeline that never got executed in the first half of 2020?

Yes. So we're very pleased with the Q3 results from a revenue perspective and from a booking perspective. We did see significant bookings growth in Q3 in enterprise. We also saw modest bookings growth in service provider in Q3 as well. There is some of the revenue, particularly some of the service provider revenue in Q3. I would say it did benefit from the strength in first half bookings. The supply constraint still remains elevated on particularly our service provider products; actually our MX and our PTX products are where we're still seeing the most significant supply constraints. We do expect those to moderate here as we close out the year. The rest of our portfolio was largely back on track to normal lead time. So if you look at the quarter result in Q3, from a service provider perspective, revenue growth – the large sequential increase, there was some benefit from first half bookings, but I would note that even Q3 standalone service provider bookings were up on a year-over-year basis. So we're seeing pretty broad based momentum. I wouldn't over rotate on the first half’s results of bookings being the reason why we had a strong Q3.

Got it. Got it. Thank you. And then just one quick follow-up. You're guiding to EPS growth being modestly ahead of your top line revenue growth, and there are some moving pieces of OI&D. I’m just hoping to get some more color on EPS. Given margins are essentially also basically flat in 2021, your operating margin guide. Does this mean that there's going to be a pronounced buyback taking place in 2021? Or is there something a little bit more – something very similar to what you guys have done historically in the quarter and end of the year?

Yes. At this point, we don't have anything specific to talk about on 2021 as it relates to capital return program, other than we will remain consistent with past practices. We will return greater than 50% of our free cash flow to shareholders in the form of dividends and buybacks. We’ll remain opportunistic. We don't have an implied large buyback baked into our current P&L outlook.

Our next question comes from the line of Tim Long with Barclays. You may proceed with your question.

Thank you. Yes, just two, if I could. First, maybe Rami, if you could talk a little bit about you mentioned a good traction for 400 gigs switching. It sounds like you secured a new top 10 customer. Talk to us about the timeline of a more significant ramp and maybe some larger customer wins in that vertical. And then secondly, if you could just double click a little bit on the security piece, looked a little bit weak in the quarter. It's kind of lagged a little bit this year, so maybe if you can highlight what's going on there and what it'll take to turn that business around into next year. Thank you.

Yes. Thanks for the questions, Tim. I'll address both. So on the 400 gig side, I have confidence in the technology, and there's a lot of new technology that we've introduced into the market here. If you consider new silicon, that's 400 gig capable; new systems that are optimized for 400 gig and a vastly enhanced operating system that we call Junos Evolved. So that momentum that we're seeing is mostly been in the wide area, but we are starting to see some success in the data center. And the thing that I liked the most about this is that it gives us an opportunity to prove out the competitiveness of our product portfolio. And all of these wins involve some level of competition. It hardens our new technology stack and ensures that we're ready for more and more customers as the opportunity expands. Timing wise, I think, meaningful revenue will be next year sometime and in particular in the second half of the year. And then on the security front, our business is very tightly aligned to our high-end portfolio. That's where we have a real – a pretty high level of differentiation relative to peers in the industry. And that's tied to cloud provider and service provider purchases. In the service provider space, many of the security deployments are for 5G networks or networks that are gearing up for 5G traffic. So it just so happened at Q3 after a couple of actually solid quarters, Q3 was a little bit weaker because of the timing of some of these deployments. If I look at the pipeline, in particular, in the high-end, it looks very solid. So I'm actually not too concerned about the performance in Q3.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Samik Chatterjee with JPMorgan. You may proceed with your question.

Hey, guys. Thanks for taking my question. I just wanted to start off by seeing if you could flesh out the organic growth guidance for next year, a bit more by verticals, and particularly how you're thinking about the magnitude of growth when we kind of look at cloud and enterprise verticals separately. And what are you baking in terms of further award wins, for example, with cloud customers in that outlook? I have a follow-up.

Yes, sure. So while there still are some uncertainties out there, we do believe based on the momentum we have and the investments we're making, that we will return to organic growth next year on a full year basis. We're comfortable with current street estimates, looking for low single-digit organic growth in 2021. From a vertical perspective, we expect enterprise and cloud to be growth drivers for us, and we expect further stabilization within service provider, and it news all kind of organic statements. Clearly, the pending acquisition of 128 Technology as we mentioned last week should add nearly a point to revenue growth on a full year basis in 2021. And we expect those trends likely to be stronger in the second half of 2021, if that's still a very much a ramping growth business.

Okay. And when I think about kind of the stabilization, which you're sounding more confident about for the service provider outlook, I think there's generally broader concern in the investment community that the outlook remains for a decline on a more structural basis there, even if it's closer to kind of stabilization. Can you address that? Like once you get past even 2021, do you see a path back to growth for the service provider business?

I think longer term there is a path to growth, but we're not talking about 2021 at this point. The thing that gives us confidence in our ability to further stabilize this segment, which would of course be improvement to this year, and this year is actually significant improvement to what we saw last year is execution. And in particular, it's the diversification in how we're approaching this market segment. Diversification from a technology standpoint where it's not just about selling routing into the wide area, it's also about selling switching for telco cloud data centers, as well as security for 5G deployment, and then its diversification from a customer NGO standpoint. So we took some bets with our account coverage, our sales transformation that we took a couple of years ago that are starting to pay off with international momentum in the telco space with accounts that traditionally have not bought much from Juniper, if anything at all. And we're starting to see some really encouraging momentum in verticals like the cable segment, both here, especially here in North America, but also to some extent internationally. So that is a matter of strategy, it's a matter of execution that gives us the confidence in the outlook.

The only thing I would add is that diversification strategy that Rami mentioned from a service provider perspective, it absolutely applies in our other verticals as well, but we're seeing significant diversification in our Cloud business both, Tier 2, different logos on the hyperscalers and more use cases as well as obviously Enterprise is a very diverse vertical for us going forward. So I think universe diversification has absolutely been paying dividends for us here over the last few years.

Great. Thank you.

Thank you.

Our next question comes from a line of Simon Leopold with Raymond James. You may proceed with your question.

Great. Thank you. First, I just wanted to maybe get a bridge clarification on the strength in service provider this quarter. How much of this do you consider the catch-up from the supply chain issues and how much maybe is coming from the exceptions of the product refreshes like vMX-5G and really what I'm going for is sort of what was catch-up versus what's more organic in terms of trends in service provider? And then I've got a longer term follow-up.

Yes, so I would say the majority is as Rami mentioned is execution related. It's our ability to diversify away from certain Tier 1s into broader Tier 2 internationally as well as other verticals like cable. So I really believe execution is the primary driver of our success within service provider. There was a little bit of catch-up if you recall, Q1 we did miss expectations due to supply constraints that hit us late in the quarter. I think that was about $20 million to $30 million of kind of miss in Q1 that has probably been spread back into the Q2 and Q3 results. At this point, I feel pretty good that our supply constrain while still elevated, it is we're not losing ground nor we are necessarily gaining much. It's relatively consistent, particularly on the service provider vertical.

Yes. The only thing I will add here is just keep in mind our position among service provider is internationally. We are obviously deployed in many service provider networks across a variety of use cases and where we are deployed, typically there are empty slots in systems that are ready for upgrades when there are capacity requirements and we're constantly innovating and introducing new line cards like the latest MPC line cards for vMX that offer our customers a very easy inexpensive upgrade path to meet those capacity requirements and that certainly is something that's benefiting us today.

And then I wanted to see if maybe you could elaborate on longer-term objectives for your position in the campus environment. If I look at your campus switch share according to some of the third-parties, it's bounced around 2% to 3% range. And we certainly have heard some more comments in the channel checks about improved momentum of brand awareness. I guess what I'm really trying to get at is, thinking longer term, where do you want to take this business? How, – whether its market share, revenue objectives, could you quantify what the longer term plan is around your campus position? Thank you.

Absolutely. So if you look across LAN, Wireless LAN and let's include WAN as well, Enterprise WAN or SD-WAN, that's a $20 billion market opportunity, and we're actually not interested in that full opportunity. The part of that opportunity that we're interested in is the fastest growing part, which is the cloud-delivered, AI-driven opportunity. That's what our AI-driven enterprise solution is all about, where we want to offer the industry’s best clients to cloud solution that includes everything from the end user, irrespective of whether they're in the office or at home or wherever through their wireless WAN, LAN and through the WAN to their favorite cloud. That focus – that hyperfocus and the investments that we've made on that client to cloud solution is what is paying off for us right now with a very high degree of differentiation. Our objectives in a nutshell is growth is faster than market and that's exactly what we have seen – what we've been seeing for the last several quarters. In terms of longer-term aspirations, I would just say maybe this will be a little bit of a teaser. We'll do an analyst event in the first half of next year, and we can provide you with additional color on longer-term aspirations, but let's just say, if it doesn't come across clearly on this call, I'm very excited about this opportunity as well as our ability to take share.

Okay. I'm looking forward to the event to get some numbers behind it. Thank you.

You bet.

Our next question comes from the line of Amit Daryanani with Evercore. You may proceed with your question.

Yes. Thanks for taking my question, two for me as well I guess. I guess first-off, when I think about this low-single digit growth organically in calendar 2021, is there a way to think about it, is the growth going to be fairly even through the year, it's going to be more H1 heavy or not. And then to the extent that growth happens, is the expectation for that coming from a better macro environment or share gains, it does seem like you guys are picking up more share versus not the last few quarters.

Yes. So from a seasonality perspective, I would expect it to be largely similar to this year on an organic basis. I do think the acquisition, as I mentioned before, of 128 Technologies will probably be more backend loaded, so that incremental near the point of growth would probably be more backend loaded, but from a Juniper organic perspective, I don't see the pattern changing much typically would go down obviously from Q4 to Q1, and then we build gradually throughout the year and I expect that to happen next year, as well. Sorry, what was the second part of the question?

Yes. It’s something the expectations for calendar 2021, are these more driven by, we think the macro is going to be more better next year or share gains that seem to be helping you.

Yes, it's absolutely about share gains. I mean, we're expecting the macro economy to be largely the same as I mentioned earlier, it's highly uncertain. However, we feel about the momentum we have and our presumption that the economy remains roughly the same. We don't see further deterioration. We expect to see organic growth. I believe many of our competitors are not going to see organic growth. So I expect us to take, share like we have been this year, I expect us to continue to take share next year that's our current working assumption.

Got it. And then if I could just follow up, AT&T recently talked about the ability to start using white boxes for call routing solutions disaggregating the core layer, if you may. I’d love to get your perspective, how do you think of that dynamic and does that expand the competitive landscape in the call routing market and how does that impact Juniper?

Yes, so I'll take that. We obviously have a lot of respect for AT&T they remain a great partner and customer of ours, having said that I'll talk about disaggregation and white box more broadly. And my perspective here largely has not changed all that much. I’d look at the architectural side, the technology side of disaggregation and Juniper has actually already invested quite heavily in disaggregating our operating system, because it gives us a tremendous amount of benefit. It gives us flexibility, it gives us the ability to reap the benefits of having merchant silicon offerings and custom silicon offerings, and even offering our routing protocols DAX and so forth on x86. That is actually something that we've done because it benefits us. We've also taken the step of offering some parts of our products especially in the switching area in a disaggregated forum where customers can procure our network operating system independently of hardware and quite frankly, the general interests has been weak. So I think the vast majority of our customers are looking for integrated solutions. They want the openness and that flexibility between software and different hardware types, which we can absolutely offer. They want to procure services for the entire stack of technology that includes software and hardware. And if things were to change and more customers start to ask for some sort of disaggregation as a procurement model, it will be ready, because we made the investment. The only other thing I will say is, we have disaggregated components of our OS, our operating system like our routing protocol stack. And we call this for example, cRPD, containerized routing protocol daemon and we've offered it as a separate entity on our price list. And on that kind of disaggregation, we're actually seeing some very robust interests and the deployment models here are all over the place. You can put them in servers, you can put them on white box which is, but all of this is a net new opportunity for us. I don't see this as being cannibalistic in any way. They tend to be very different use cases than the kind of use cases that we serve today.

Our next question comes from the line of Aaron Rakers with Wells Fargo. You may proceed with your question.

Yes. Perfect. Thanks for taking the question. I have two as well. I wanted to start first on the 400-gig opportunity. I think last quarter you announced your first 400-gig win. This quarter you talked about a Top 10 cloud customer. Can you just give us a framework of how much of a pipeline, how many wins you've had on the 400-gig, but has there been any timing change or shift out in your expectations of materializing revenue contribution? Because, I think the last quarter you alluded to maybe starting in earnest in early 2021? And then I have another quick one.

Yes. So in terms of the number of wins, I actually don't have that number right now. We can look to provide you that number in future quarters or at the analyst events in the first half of next year, but it's growing. And in many cases it's either growing with native 400-gig ports that are being deployed today based on the availability of optics or customers are buying 400-gig ready products using breakout cables and things of that nature to get 100-gig connectivity today, but with anticipation that they will eventually deploy 400-gig with the right optics. So I'm honestly quite pleased with the rate of growth this early in the game, across both SPs and cloud providers in this space. And as far as timing, I do think COVID has impacted the timing of 400-gig deployments in particular in the cloud provider space, but to some extent in the service provider space as well, but I don't think it's all that significant. I mean, I still think the ramp is going to be next year, I just think that the meaningful ramp will be more in the second half of the year.

That's helpful. And then as a second question, just remind us again of how you see the 5G opportunity. As we start to hear Verizon talk about their base station deployments, really starting to ramp up and obviously we move into the next year. I'm just curious of how Juniper sees it from a core network infrastructure side and when that might start to benefit your Service Provider business?

Yes, absolutely. So obviously given our position with telco this is a very interesting dynamic for us and one that we track and one that we're investing in. And what it means specifically for Juniper is three different things. One I've mentioned already, which is around security. Our high-end security portfolio provides our customers with that perfect cocktail, if you will of performance and efficacy. That is really unique in the industry today and has resulted in a number of worldwide service provider win where service providers are deploying the technology to protect users, infrastructure and data in anticipation of 5G deployments. Second is about transport. I mean, there's no doubt that if you're going to have Faster RAN, Faster Radio Access Network, that's going to result in more bits that needs to be carried in fiber optic networks and that's where we come to play. Today, it's largely around core and edge. And as I mentioned earlier, increasingly it's about metro with the portfolio that we're starting to introduce into the market. And the third element of 5G that's very important to us is the data center, because 5G is inherently going to be a cloud native deployment model, especially with O-RAN and D-RAN deployments that are picking up steam in the industry. Those require highly distributed, highly automated data centers. And that's something where we've already seen some strong momentum in with the combination of our hardware portfolio, but then also our software-defined networking portfolio and Contrail that stitches the solution nicely for our customers.

Operator, we'll take two more questions.

Our next question comes from the line of Jeff Kvaal with Wolfe Research. You may proceed with your question.

Yes. Thank you. I have two questions for you all. And I think one is the cloud growth that you have sketched out for us in 2021, sort of flattish to low-single digit. Couldn't that be better? I mean, shouldn't that be better in cloud that's where the action is. The pandemic is driving roads there, sounds like there's some share gains coming. And I just – I feel like that's kind of a low bar. I was hoping that that number might be a little higher. So if you could shed some light on that, that'd be grateful. And then secondly Ken, if you wouldn't mind clarifying on your sort of slight EPS growth above revenues, is that inclusive of 128 or is that on an organic basis? Thank you.

Yes, let me address the first question and then I'll let Ken address the second one. On the cloud, it is entirely dependent on the deployments of large hyperscale cloud providers. I mean, keep in mind that we have a unique position among cloud providers with the footprint that we have and we preserved. And if you recall, if you've been tracking us for long enough, a couple of years back, we went through a fairly difficult product transition that's now behind us. And the whole idea there was to retain that footprint so that we can benefit from deployments that are happening. And we saw some of that in the first half of this year, but cloud has always been a highly lumpy type of vertical because of the concentrated nature of the customer base and CapEx expenditures within that customer base. So I remain optimistic about cloud as a vertical that we focus on long-term, but we're doing everything we can and the rest is really up to our customers and their deployment patterns.

And on the EPS front, the commentary provided for 2021 where we expect non-GAAP EPS to grow slightly faster than revenue that does include 128 Technology, which we mentioned is about $0.05 diluted, that's our expectation that includes that dilution from 128 Technologies.

Okay. Thank you all very much.

Yes. Thank you.

Our next question comes from the line of Meta Marshall with Morgan Stanley. You may proceed with your question.

Great. Thanks. I just wanted to ask a question on product gross margins and just kind of the down take year-over-year, I would think with stronger routing performance that maybe margins would be a little bit better. So is that, should we consider some of that weakness just from stronger deployments or just any commentary around gross margins kind of on a year-over-year product basis would be helpful. Thanks.

Yes. So there's really two drivers. One would be the COVID related costs that we talked about a lot on the last call. So clearly there are some year-on-year comp differences. Our margin would have been up a full point in the Juniper aggregate level, on the product side only it would have been closer to a 0.5 increase if it weren't for some of these COVID elevated costs. It's still is down year-on-year, even if you adjust for that on the product only side and that is a factor of mix. And it's to your point it's not as simple as just looking routing versus switching or service provider versus enterprise. You really have to get down a level into what's happening in a mix. One example I'll mention is software, right. So the software mix is clearly down year-on-year, we've talked about that and that's hurting margins a bit on a year-to-year basis. There's also just different product mix, different customer mix, different deal mix this all factors into our gross margin results. We're pleased with our performance this year. We expect to grow margin with volume going forward. We expect software mix to become a bigger contributor in next year, which will also help gross margin expand on a year-over-year basis and we'll continue to focus on value engineering efforts. So we feel confident about where we are and where we're headed with gross margin.

Got it. And then maybe just a follow-up, you guys have alluded to this, but just in terms of some of the enterprise strength that you're seeing, would you characterize that as you've made the portfolio more – you've buffered the portfolio, you've made the sales investments or just kind of improved buying behavior on part of the customer, that seems as if it's the sales investments that you're kind of pointing to primarily at least in early days and product portfolio kind of in 2021, but just any last commentary there.

Yes. I'd be happy to address that. Definitely, we've made some investments, both in go to market in sales in particular, but then also in the product portfolio. I talked a lot about the differentiation in the AI-driven enterprise around campus and branch, and the wide area, but I also just emphasize that our innovation is strong in the data center as well and we've seen some real great momentum in the data center across not just the enterprise, but also with telcos. They're all deploying lots of data centers in a distributed fashion to get ready for 5G deployments to offer different types of virtualized services. Both go to market and portfolio strength is the primary driver for our enterprise momentum.

Great. Thanks.

Thank you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for participation. Have a great rest of your evening.