Kathleen Nemeth - Vice President of Investor Relations Rami Rahim - Chief Executive Officer Robyn Denholm - Chief Financial and Operations Officer

Amitabh Passi - UBS Simona Jankowski - Goldman Sachs Pierre Ferragu - Sanford Bernstein Ehud Gelblum - Citi Tal Liani - Bank of America Merrill Lynch Mark Sue - RBC Capital Markets Rod Hall - JPMorgan Jess Lubert - Wells Fargo Vijay Bhagavath - Deutsche Bank Sanjiv Wadhwani - Stifel Ittai Kidron - Oppenheimer Brian White - Cantor Fitzgerald

Greetings. And welcome to the Juniper Networks First Quarter 2015 Earnings 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 now like to turn the conference over to Ms. Kathleen Nemeth, Vice President of Investor Relations for Juniper. Thank you, Ms. Nemeth. You may now begin.

Thank you, Operator. Good afternoon. And thanks for joining us on today’s call. Earlier this afternoon, we announced our first quarter results and outlook for the second quarter of 2015. Also shortly after the issuance of our financial results press release, we posted to the IR section of our website financial commentary by Robyn Denholm, Our Chief Financial and Operations Officer. We have also furnished this commentary to the SEC on form 8-K. We hope you find this new format helpful and we welcome your feedback. With me today are today are Rami Rahim, Chief Executive Officer; and Robyn Denholm, Chief Financial and Operations Officer. Today's call may contain certain forward-looking statements, including statements concerning Juniper's business, economic and market outlook, strategy, future financial operating results, capital return program, and overall future prospects. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are listed in our most recent 10-Q and the press release furnished with our 8-K filed with the SEC today. All statements made during this call are made only as of today. Juniper undertakes no obligation to update the information in this conference call in the event facts or circumstances change after the date of the call. Our discussion of the financial results today will include non-GAAP results. Full GAAP to non-GAAP reconciliation information can be found on the IR section of our website. As a reminder unless otherwise noted, revenue growth rates have been normalized for the sale of Junos Pulse. For important commentary on why our management team considers non-GAAP information a useful view of the company's financial results, please consult the press release furnished with our 8-K filed with the SEC today. Now, I'll hand the call over to Rami.

Thanks, Kathleen, and welcome everyone. We delivered solid results for the first quarter of 2015 exceeding our guided ranges. Our strong year of your expansion in non-EPS reflects our continued focus in operational discipline and is a testament to our proven ability to execute on our strategy. We are making significant progress against our key initiatives and we remain steadfast in achieving our outlook realizing Juniper’s full potential. Industry fundamentals are unfolding largely as we anticipated. Based on our visibility and our discussions with customers, we continue to expect an improvement in demand in the second half of 2015. It has been a busy Q1 at Juniper and I’m proud of what we’ve accomplished in the past few months. We’ve organized our R&D team to innovate as a start-up and unveil the compelling line-up of new products and solutions across routing, switching and security that address real problems faced by our customers and that will make a meaningful difference in the connected world we live in today. We’ve been listening closely to what our customers tell us they need and a reception from those that I have had early access to these new products has been very positive. Our customers truly value our mission of creating solutions that offer performance and advanced automation capabilities without compromising on scale and reliability. We are enabling our customers to deliver new revenue generating services and a better experience to their customers. I am energized by all the new opportunities our investments and innovations will make possible. I will now comment briefly on highlights from routing, switching, and security in the first quarter. In routing, we are generally pleased with our execution and progress. Despite the expected sequential and year-over-year decline we still see growth opportunities in routing all out. The diversity of our customers across our focus verticals continues to help offset weakness in U.S. carrier spending. Cloud providers and cable operators continue to be highlights for us and we are pleased to see solid progress with large enterprise customers such as those in our governments vertical that is opting our routing and SDN solution. Regionally, EMEA returned to year-over-year growth in Q1 and we started to see traction from some key customers in APAC. In the first quarter, we announced enhancements to the PTX product line that make it the highest performing IPU routing platform in the market. Three times that of the closest competitor, empowered by Juniper’s new ExpressPlus silicon. Coupled with our NorthStar WAN SDN controller, I am confident that we will be well positioned to take routing market share once these products fully ramp. In switching, we are pleased that our mid-to-high end data center business was strong in the first quarter. So, our overall product revenue was down. We expect to continue to grow in the data center with our sales focus and new line of QFX spine switches, which will be the highest performance switches on the market. These switches can deliver unprecedented scale and port density to all types of data center and cloud deployment. Coupled with contrail and our partnership with VMware, we are well equipped with highly automated cloud data center solutions for both service provider and mission-critical enterprise network. Moving to security, we know we still have work to do to return to growth in this area of our business. Starting in early February, we outlined for customers our expected product direction over the next 18 months illustrating our commitment to offering demand level solutions to have a strong element of security. Our customers understand the criticality of securing the networks we provide and the roadmap was well-received. Just last week, we announced the in-speeds fastest firewall with 2 terabits per second of performance ideal for bandwidth intensive mobile deployment, as well as large cloud data centers. We are getting in front of our customers security challenges and we remain focused on areas where we can win. Service has deserved a quick recap as well. We saw a year-over-year increase in service revenue driven by new service contract and strong contract renewal. We continue to help customers through their next-generation network architectures and with the transition towards service agility and automation. Now to take a step back, the continued expansion of cloud computing and the mobile Internet has broad implications for the technology industry as a whole and for networking innovation in particular. There is tremendous opportunity for us to deliver on our vision of being the worldwide leader in the network innovation. We believe the industry needs a technology provider that is maniacally focused on IP networking, that's Juniper, that's what we do every day. We are squarely focused on solving our customers’ toughest networking challenges with superior products and services that transform the economics of networking through high performance and automation. And we have strong relationships with our customers and a robust growth global partner ecosystem that we believe will enable us to win in the marketplace. Our sharpen strategy and focus go-to-market model have come together to drive real competitive advantage for us. We are executing on our vision to be a worldwide leader of network innovation. We remain resolute in our focus to drive comparable profitable long-term growth and increase shareholder value. As we continue on our course, I want to thank our customers, our shareholders and our nearly 9000 passionate and hard-working employees for their ongoing support. Now I’ll return to over to Robyn, who will review a few highlights of the quarter.

Thank you Rami and good afternoon everyone. Before I begin I would like to point out that we posted my detailed CFO commentary on our website prior to this call. For the first quarter of 2015, we delivered good year-over-year non-GAAP operating margin and earnings per share expansion, reflecting continued management of our cost structure and a significant reduction in our share count, while driving innovation and remaining focused on our growth strategy. We exceeded our revenue guidance range due to slightly better demand from our Cloud, Cable and European Service Providers, which points to the continued strength in the diversification of our customer base. Our underlying demand metrics were healthy this quarter with an increase in both total and product deferred revenue and a book-to-bill greater than 1. We continue to deliver on our capital return program. In the quarter, we repurchased $400 million of shares and we are reaffirming our commitment to repurchase a total of $1 billion of shares from January through June of 2015. Additionally, in the quarter we completed a $600 million bond offering enabling us to execute on our total capital return of $4.1 billion to shareholders through 2016. I’d like to provide our perspective on the proposed merger between Nokia and Alcatel-Lucent as it relates to the Juniper business. Our partners are a key component of our go-to-market strategies. The majority of that revenue is either resold or distributed through our partners. We have a good relationship with Nokia and in 2014, they resold approximately $190 million of Juniper products and services. Our strategy is to be the worldwide leader in network innovation and to deliver products and services that really matter to our customers. Irrespective of the router market, we have direct relationships with our large end-user customers. Moving on to the foreign currency fluctuations, the pricing environment remains competitive and we take into account currency fluctuations in our pricing strategy. As a reminder, we primarily price an invoice in U.S. dollars. And as a result, we have not seen a significant translation impact on our revenue from the strengthening of the U.S. dollar. On the cost side and the balance sheet, we have a hedging program in place to reduce the variability associated with currency fluctuations. Now, let’s take a look at some of various assumptions behind our outlook for Q2 and the demand environment for the second half of 2015. We expect continued momentum from our cloud and cable customers. We also expect further growth throughout the year from our international customers as they continue to build out the network. In addition to these trends, we expect an improvement in demand from our large U.S. carrier customers in the second half of the year. Based on all of these factors, we expect to see an improvement in our revenue in the second half of 2015 relative to both the second half of 2014 and the first half of 2015. You can find the detailed outlook for Q2 in the CFO commentary available on our website. In summary, I am pleased with our performance in Q1 and I would like to thank our team for their continued dedication and commitment to Juniper’s success. And now, I’d like to open the call for questions for the remainder of the hour.

Thank you. [Operator Instructions] Our first question is from Amitabh Passi of UBS. Please go ahead.

Hi guys, I had a question and if possible a quick follow-up. I guess the question Robyn or Rami was just your conviction level and the visibility in the back half of this year in terms of the outlook particularly with U.S. service providers. I also want to just clarify Robyn your comment about second half being better than second half of ’14. Is that on a quarterly basis i.e. would you expect 3Q ’15 to be better than 3Q ’14 and 4Q to be better than 4Q ’14? And then I have a follow-up.

Okay. Let me start – sorry, Amitabh, I think we got the question first. Thanks for the question, and I’ll start and then I’ll pass it over to Robyn. The first question about conviction with respect to the second half, the really two elements to the guidance that we have provided or the outlook we provided. First and foremost, we remain very close to all of our service provider customers including those that are here in Northern America. So we obviously have good visibility into projects that we are working on together. We have as good visibility into the trends that are happening in the industry, similar visibility to what you see. And based on that, I would say that, yes, we are pretty confident in the improvement in spending and a demand in the second half of this year. The second element I think to your question that’s equally important is the fact that we expect to see continued diversification of our business across all of our key verticals. So Q1 was another really good quarter in terms of the traction that we saw with cloud providers and cable operators. And clearly, these are very strategic verticals where our engagement with customers are happening on an ongoing basis and we feel good about the strength and our position in the industry if you will, our competitive position relative to these verticals in the second half. And Robyn, I’ll it to you for the rest.

Yes, Amitabh, in terms of the commentary what I said was that, we expect the second half of 2015 in aggregate of it is going to be above the first half of 2015 as well as the second half of 2014. I am not expecting a different trajectory Q3 to Q4 versus what we’ve seen in the past.

Okay. And then if I can just squeeze a quick follow-up, hey, Rami, just on the new product announcements you had, a few of them in the last three to six months, which one, two, or three would you think would start to add to revenues as we move towards through the rest of 2015 and into 2016.

Yeah. Thanks, Amitabh. First, I feel really good about the products and the announcements that we just unveiled to the industry. These are obviously technologies that we have been working on very diligently over the last several years and Q1 was honestly very exciting for us business we finally had an opportunity to announce to everybody what it is that we’ve up to. And as you know, they really touch all of our different business areas in switching, routing and security. I have to sort of just remind everybody that, yes, these products all go through their normal certification cycles. We have to first get them out of the market. So right now we are all working around the clock to make sure that we get them into our customers’ hands and ready for deployment, crossing all of the tees and diving the eyes if you will on the testing that needs to happen right now. I expect the first products that hit the market will be the switching products and there I think the ramp will be sooner just based on the availability of that product to that market followed by the enhancements that we’ve made to the PTX product line that happens in the Q3 timeframe.

Thank you.

Thank you. The next question is from Simona Jankowski of Goldman Sachs. Please go ahead.

Hi, thank you. Just a couple of questions and a follow-up to the prior question on the new products. So Rami, based on your guidance for both Q2 and the second half, it sounds like they are not really expecting a pause or kind of an half burn effect because of these new products as customers wait for the better products to come out later in the year. Can you just comment on why that is? And then follow-up on specifically the switching part of the portfolio, we haven’t yet seen you announced anything in the area of 25 or 50 gig in the datacenter or 2.5, 5 gig in campus. Can you just comment on whether those are segments that you plan to address.

Yeah. Sure Simona. Thanks for the question. First, on the overhang effect that you are talking about, we’ve gone through product transitions at Juniper now a number of times. So we obviously are aware and always factor into our projections and our plan, the potential for any sort of an overhang effect. But that said, I am just going to drill one level deeper. We’ve been talking to our customers about these innovations for quite a long time now. In fact, with many of our customers, we’ve developed these products with direct input and guidance from them. So it’s not going to be new news for them. Secondarily in the – let’s say the routing demand with the PTX. Here, our customers have actually really liked the fact that we are continuing to invest in this product line and so they know they have the peace of mind if you will that they can continue to purchase it and have the ability to upgrade in the future when their capacity require them. On the switching side, I would say the overhang effective slim to none because of the fact that this essentially addresses the gap that exist in our portfolio as opposed to something that replace of the product line that already in the market. On the – your follow-up question, on 25 gig and some of these newer interface speed, we haven’t gone out externally and talked about specific products. All I’ll say for now is that actually this is an important topic for us in the company. We understand what our customers’ requirements are with respect to various different inter phase speeds and we are building that into our roadmap.

Great. Thank you, Rami. And then I just had a very quick follow-up for Robyn. Robyn, I heard in your comments on FX having not had a translational impact which makes sense. It was interesting how strong your EMEA business was. Did you not see any impact in terms of either deal size is getting smaller or competitively or in terms of pricing, just from how strong the dollar was?

So clearly in the first quarter, we did have very good results in our EMEA business. It was actually up year-over-year. In terms of the pricing impact, it is a competitive market and we continue to take into account the currency impact on our customers budgets, if you like, as opposed to just our own product pricing. And so it is a factor that we’ve dealt within the past and we will continue to deal with it. Obviously, going forward, we factored in what we believe will be the impact from currency into the guidance that I have given you for the second quarter and then also more in terms of the color for the second half of the year as well.

Thank you.

Thank you. The next question is from Pierre Ferragu of Sanford Bernstein. Please go ahead.

Hi, thank you for taking my questions. Rami, first of all, we’re talking a lot about the consolidation in the industry, of course, you’ve mentioned the Nokia/Alcatel-Lucent merger. And so, I’d love to hear your thoughts on the topic. First of all, how do you see that affecting you guys? Like, more consolidation in the industry, and I’d say beyond of course the direct impact of Nokia being one of your distributors? And then, so, I would love to hear your thoughts about how you see the industry evolving, going forward? Do you think there could be more consolidation? Do you think you could play in that? And I’m thinking about two things: could Juniper be stronger as a part of a larger entity with service provider clients? And also from a technological perspective, how do you think about you guys potentially being stronger closer to adjacent technologies like wireless and transport versus being independent and focused on IP routing? And then I have a very short follow-up for Robyn.

Okay, great. Thank you, Pierre. Okay. So, certainly, we see the industry dynamics that are panning out right now. Consolidation is one of those industry dynamics and difficult to predict, but, yes, it could continue going forward. There are other dynamics that are happening as well. There are transformational architectural shifts that are happening right now across the industry, of a movement towards cloud-based service delivery, value delivery to the end users whether that’d be residential or business end uses. And honestly I believe that there is a need for a company that’s going to be really laser focused on developing the types of IP innovation that are necessary to get our customers to make this transition. That’s the role that we play in this company. That’s the role we play at Juniper. So the net of it is there is no change to our strategy, our strategy remains one of delivering and competing based on the merit of our technology and on achieving scale through really effective partnerships. With respect to Nokia, Robyn addressed in her opening remarks, we have deep direct relationships with all of the customers that we work with whether they go through Nokia or not, and we have a variety of other partners to choose from as well in taking our innovation to market. As far as the second part of your question with respect to potential M&A for Juniper, I have said in the past and I still do believe that our strategy to innovate is going to be largely organic, but with the potential to augment it with some M&A activity. Right now the focus is primarily on getting the products that we’ve announced out the door, but at some point it will probably make sense for us to think about M&A to complement that and we continue to do that as part of our ongoing strategic process.

Thanks a lot. And, Robyn, a very, very quick follow-up on the $190 million of business you’ve generated with Nokia last year. How should we think about how sticky the business is? So I understand that you have relationship with client, it’s not completely fully at-risk, but there will be pressure on – potentially on these numbers. Is that something that can happen in the short-term, or is that more like a longer-term race, because you have like good contractual and like protection related to the fact that it's difficult to swap out technology in a network?

Thanks, Pierre. I think that is a good question. I mean from our perspective, obviously, what we control is actually our relationships with our customers, our end-user customers. In terms of the profile of that $190 million for 2014, it was both product and services; it was actually routing, switching, and security, in those numbers. Clearly, there is some overlap in terms of routing with the Alcatel-Lucent portfolio as and when this transaction closes and so that will take some time. So, we believe that there is an opportunity to continue to partner on those areas where we don’t overlap. And then, obviously, the services contracts continue over time with those end-user customers. And the profile of the revenue products versus services is roughly the same as the overall Juniper profile in terms of overall percentage.

Actually, that’s very good. Thanks a lot.

Thank you. The next question is from Ehud Gelblum of Citi. Please go ahead.

Thanks, guys. Appreciate it. Rami, welcome conference calls, I guess you did one before too, but –

Thank you.

Sure. So, a couple of things. First of all, we have mergers in lots of different directions. One obviously is the vendor one, you’re talking about. The other one, given that you are seeing strength in cable is coming from two large cable companies in the U.S. that were on a merger path that may or may not be on a merger path, going forward. Can you give a comment as to how would that impact things positively or negatively, if that merger doesn’t go through? And what kind of like signposts should we be looking for, in terms of what that would mean to your business at EDH1 and just thought process on that? And then, Robyn, a couple years ago, when you had a slew of new products coming out in 2011, I want to say, you gave us this target, I believe it was $75 million – $75 million or $150 million, I can’t remember. That was about seven quarters out. Is there some kind of signpost that you can give us on growth of these new products that you came out with that are coming out now that we can kind of look to, a couple of like a years or so out, so we can kind of track the progress of the new products? And then I have a very quick – just a small follow-up.

So, Ehud, I will address the second part of the question and then Rami can address the first part around customer consolidation. So in terms of the new product ramps to revenue, obviously, we are very focused on doing that. And Rami went through the number of steps that we need to do in terms of getting the products out and then also having them certified for the networks and that type of thing. We have not put out nor are we going to put out a number in terms of the quantity of revenue to expect. What we would do is give you progress as we incur design wins and that type of thing. But in terms of an overall number, it’s included in our outlook for the second half of the year and it will be modest this year in terms of any revenue impact.

Thanks, Robyn. On the question regarding cable, first, I will remind everybody that cable is one of our key strategic vertical that we are focusing on and measuring ourselves against in terms of performance of the business. We enjoy a really strong relationship on both sides of the potential merger, you talked about Comcast and Time Warner, and we continue to do so. We’re working very closely with them on the variety of different projects. I personally engage with executives on both sides. So, honestly, whether it happens or not is a very neutral thing for us, it doesn’t change the importance of the vertical for us, it doesn’t change our investment level that we would put into the vertical to make sure that we remain aligned with the innovations that we are introducing into the market. And I will say that some of the new products that we have just talked about were developed with explicit and detailed feedback about the requirements for the cable industry. We know what they want, we know what kind of performance, the capabilities, the feature set that is required to build out their networks, and I feel confident that they are actually going to play out very well for the vertical.

Thanks. So I was just confirming that you actually are on both sides of that, Time Warner and Comcast. Robyn, my question was, on cash flow statement, there is a line, professional services related to non-routine stockholder matters. That was $7.3 million in the year ago quarter and $3 million in this quarter. Is this to deal with your activist investor? And what was the $3 million spent on?

So that is actually to do with the settlement that we reached in first quarter in relation to our proxy.

Excellent. Okay, thank you.

Thank you. The next question is from Tal Liani of Bank of America Merrill Lynch. Please go ahead.

Hi, guys. I have two questions. The first one is more kind of a longer term. I understand that routing will have cyclical recovery, but if I try to think outside in terms of kind of recovery, in the last four years, routing revenues were flat, 0% growth. What do you think is the outlook? What are the – even if you don’t get to a specific number, what are the puts and takes for growth over the next four, five years? Why should it accelerate now, if it didn’t grow the last four years, if you take the whole 2011 to 2015? The second question is about the outlook for cost cuts, if at all. So, you’re coming out of the big restructuring program. Is that it from cost cuts point of view? So going forward, will margin enhancement be more of a function of revenue growth, or is there any room for additional cuts? Thanks.

Okay. Let me start, Tal, and then I will pass it over to Robyn. The outlook that we had provided on our routing business over the next three years was essentially 3% to 5% in revenue growth. And I believe that’s achievable because of a number of different things. First, just based on the merits of our product portfolio. The dynamics in the routing business are such that in order to grow, you need to take market share, and in order to take market share, you need to have better products. We just introduced a router that has three times the performance of anything else that’s out there in the industry today. At a time the traffic is growing substantially and our customers care about the economics of routing. We have a product that truly demonstrates to them what we’re capable of doing in moving that amount of traffic cost-effectively. That’s why I think we have confidence in our ability to achieve these projections. And then, as far as the restructuring costs that you’re talking about, let me just start and I will pass it over to Robyn. The most important thing that I think you need to understand is, yes, last year was a year of restructuring for us, but going forward, I think we’re going to make sure that the investments we make in OpEx are going to be commensurate with the revenue growth. We are not going to get ahead of ourselves as we have done in the past quite frankly in terms of how we invest in the business. We have to see the growth that will give us the freedom, if you will, to invest in the business, not the other way around. Robyn, do you want to add anything?

Yeah, thanks, Rami. I think, firstly, I’m very pleased with the cost performance in the quarter and also the year-over-year declines that we’ve actually achieved this quarter in terms of the cost. I think also just amplifying what Rami said, I mean, clearly, we put out in October that 25% is still our goal in terms of operating margin over this next three-year period. And we are focused on doing that in a balanced way. We want to make sure that we continue to invest in the future of the company, which is obviously the innovation that we are delivering to market. And we will, as Rami said, grow OpEx outside of this year slower than we grow our revenue. And so that’s how we will continue to expand operating margins just like we did in the third quarter on a year-over-year basis. So that is our strategy and we are continuing to do that. So the other side of that tale is that we are always looking for cost improvements, a lot of those will be invisible because you have to actually take cost out to even keep it flat in any sort of environment. So we are very focused on the cost side, but in a very balanced way.

Got it. Thank you.

Thank you. The next question is from Mark Sue of RBC Capital Markets. Please go ahead.

Thank you. It’s good to see the encouraging commentary. If I look at it from a historical perspective, you went through a period of product pruning. We now know you will keep routing, security, and also switching. As you balance your commentary with OpEx, are there submarkets or perhaps verticals where you might potentially retreat from, while you fortify your efforts into the other verticals of cloud, data center, and service providers? Just trying to get a sense of how you narrow the scope so you get multiplied the effects on the other end.

Yes, thanks, Mark. You know last year was a busy year and a tough year quite frankly because we have to make some difficult decisions about which particular product areas we are going to remain in and which ones we would divest and which ones we would unwind. That work is effectively behind us at this point in time. So I feel very good right now that we are not stretching ourselves too thin, that we are investing in areas and investing sufficiently in the markets that we are playing in in order to differentiate, to compete and to win. It’s that simple. So at this point, the focus really is on the focus in our strategy that we have to grow top line and we’ll go from there. We are in execution mode.

Yeah, and if I can just add as well, Mark, you know the work that [indiscernible] go-to-market side is also obviously yielding results and if you look at our strategy more deeply in terms of the vertical focus that we have, it’s obviously clearly focused on those customers that differentiate the network or run their business on the network across cloud, cable, carriers, as well as strategic verticals in enterprise and government. And so we are very pleased with that. And partnering is a key element of making sure that we continue to get the growth rates from a revenue perspective and continue to drive operating margin expansion as well.

That's helpful, Robyn, and on that, as you look at margin improvements and you look at firming net income, how should we think about cash flow from operations, considering the business, when it hums along, generates a lot of cash? Any thoughts on how we should think about cash flow from operations, this year?

Yes, I think cash flow generation is a core strength of the business model that we have here at Juniper. I think that operating cash flow in particular does follow the operating margin and the expansion of that will obviously lead to more cash per revenue dollar being generated. And so we are very pleased with our cash flow for the first quarter and even for the whole of last year and that enabled us to continue to drive the investments that we need going forward and also deliver a healthy return for our shareholders in terms of the capital returns that we’ve been committed to.

All very helpful. Thank you, and good luck.

Thank you.

Thanks, Mark.

Thanks you. The next question comes from Rod Hall of JPMorgan. Please go ahead.

Yeah, hi, guys, thanks for taking my question. I guess I wanted to ask either one of you on the routing cycle, maybe a little bit more short-term question. Which is, you guys seemed to think the routing cycle had bottomed last quarter, is down 15% year-over-year in your numbers. This quarter, you are down 8%, it does kind of feel like that was the right call for you, anyway. Should we anticipate the routing cycle continuing to improve? And, do you think that we're getting to positive year-over-year growth in the second half of your routing? So, that’s the first question I’ve got. And then I’ll just ask a follow-up after you guys answer that one.

Let me start and I will see if Robyn wants to add anything. I’ll just go back to the commentary we had made. We do expect just based on the two factors that we’ve outlined, service providers spend in general, I mean, I’m talking telco spend in general and, specifically, here in the United States, should improve in the second half of the year and then also the further diversification of our business across the different key verticals that includes cloud, that includes cable. Now based on that, we do anticipate the second half to be better than the first half and also better than the second half of last year. Robyn, anything else?

Yes, I agree with obviously everything Ramey said there. I would also point out and I mentioned it in my CFO commentary that we actually had a good routing quarter in Q1 in enterprise as well and that just speaks to not only the diversification of the revenue, but some of the key strategic pivots that we made last year around the data center. So, obviously, in enterprise as well as in cloud data centers in the service provider world there is an element of routing that’s in those solutions as well. And so we are pleased by that performance. We saw some good wins and some good revenue on the enterprise side of routing as well as the SP side. But to confirm, we do expect service provider routing to improve through the year as well.

Okay. And then my follow-up I guess is a strategic question for you, Rami. As you look at the routing business, it looks like, overtime anyway, routing and optical will come closer together. We know there's some organizational reasons at carriers that’s not going to happen as quickly, particularly in some of the bigger carriers, but I’m just wondering what you’re thinking about prospects of a standalone routing company? How badly do you think you guys need to develop an optical capability, a deeper optical capability, I should say, and do you think it would ever make sense to acquire assets to provide that kind of a capability?

Yes, Rod, you are absolutely right, there is a transformation that’s happening right now in the industry where the packet world if you will and the optical world that are moving closer together, you are also right about the velocity at which that’s happening. It’s not happening very fast there are all sorts of non-technology barriers that are in the way that will prevent it from moving fast. As far as our own strategy, we do have a small, but very effective optical team in-house to Juniper that I do expect will grow over time that has the capability of taking off-the-shelf optical components that are available to anybody really and integrated them into our routing products, but I also do believe that where most of the innovation is going to be on the packet optical convergence topic. It is going to be in software, it is going to be around the ability to look across layers and to make optimal decisions how to move information from place A to place B, leveraging optical and packet technology as efficiently and effectively as possible. And we have now a product called the NorthStar controller, which is essentially our WAN SDN controller that does exactly that. Honestly, I think we have some of the best minds in the industry right now that have developed algorithms that have the ability to optimize these pass across layers in a way that is very meaningful to our customers and we are engaging with a number of different customers on these products. It is still early days, early stages, but I’m encouraged by the progress that we are making.

Great. Okay thanks a lot guys.

Thank you. The next question is from Jess Lubert of Wells Fargo. Please go ahead.

Hi guys thanks for taking my question. I have a question on the security business and specifically I was hoping to understand if you see any developments that will you believe this business may be nearing a bottom, would you expect the security business to also strengthen through the year and potentially return to growth during the second half and perhaps you can walk through what’s going well and are the keys to better participating what seems to be a fairy vibrant security market?

Yeah thanks Jeff. So, our goal for this year as I stated last quarter is around stabilizing the security business, if you take a look at our SRX business in Q1, it was more or less flat with Q4. The part of the business that’s in decline and that will continue to be in decline is going to be the legacy ScreenOS business. We’re still in working progress mode if you will on security. I did mention that we pivoted our strategy, we’re not working on a security strategy that’s very highly aligned with the rest of our product portfolio and offering to main level solutions to have a strong security element to our customers and we are executing on a very high leverage engineering strategy. So, just last week in fact we announced the industry’s fastest firewall that’s 2 terabits per second. For cloud operators they are trying to protect massive cloud infrastructure and for mobile operators that are trying to protect the mobile users, their mobile infrastructure that’s very, very meaningful and it’s only possible because of the silicon innovations that we’ve already developed in-house for our other product lines and it just demonstrates the power of the synergies if you will from a cost standpoint that exist in the organization. So, in summary we are focusing on a narrow part of the market. It’s the network security space, tightly aligned with the rest of our products and we believe that we can in fact innovate to differentiate and win there. It’s just going to take a bit of time.

Rami in the security business over the last couple of years, a lot of your success has been at the high end with large services providers, as services provider spending improved in the back half of the year, should we expect that to also benefit the security business and how are you thinking about security with respect to enterprise, is the recovery likely to be more carrier focused or are you also expecting similar improvement on enterprise? Thanks.

Well as CapEx improves for services providers I expect that to help all of our business, I don’t know whether specifically for this second half it will have an effect on security. We haven’t broken that out in that way. The enhancements that we are making right now to our Juno Space security products, I want to make clear are certainly very compelling for the service provider space, but it is also compelling for large scale enterprises, so those that are building large enterprise clouds will benefit from the performance and scale that we are adding. And of course it doesn’t stop there, we’re also continually enhancing our virtual security products and assets, which is very meaningful for the enterprise space because at the end of the day breaches will always happen, you are always going to be able to overcome any security barrier you put as a parameter, once that happens the key is to prevent the spread of Malware inside of the enterprise and our reversal security products are now being used by enterprises to do exactly that. So, yes our strategy is very much around SP and enterprise. The scale and performance helps both. Certainly more on the SP and the cloud infrastructure space, but also in the enterprise side and finally virtualization is something that will certainly help both SP and enterprise.

And just to underscore that I made the comment before about routing and datacenter and the enterprise. The same was true in the quarter for security. The high-end was up again, nothing to write home about yet because it was flat overall. SRX fled overall sequentially. However, the area that did grow nice was actually the datacenter space in the enterprise in this quarter. So, it’s early days, but our overall aim for this year is to create stability in that business this year and then go from there.

Thanks guys.

Thank you. The next question is from Vijay Bhagavath of Deutsche Bank.

Yes thanks. Hi Rami how is it going. A question for you and Robyn. A question for you Rami is, it seems to be like you are doing quite well in the non-telco segments, you know the cloud portals Web 2.0 etcetera that will be helpful for us to get any color on the rough percentage split in terms of revenues like for routing. So, would it be less than 10% for Web 2.0 cloud maybe somewhere in the 10%, 20% and then the remainder would be telco and cable. It would be very helpful. Thanks.

Hi Vijay. Look we haven’t broken that out. We can consider doing that at point. I will say that the fact that we are seeing strength in cloud and cable and government is not an accident, it’s a deliberate part of our strategy. So, we are in fact listening very closely in making sure that we weave in the requirements from all the customers in these verticals into our products. And I feel good that that’s going to continue. I mean I will tell you again that the products that we have just announced that will be shipped throughout this year were all developed with a deep understanding of specific requirements in these verticals that others that might not have the strategic relationship that they have with these customers would have implemented. So, I expect that that part of the business will continue to do well and certainly the telco side will do well as there is improvement in the CapEx environment there.

Yes. I just want to add one more point Vijay. I think the diversification of the revenues, the core strengths of ours and this quarter one of the stats I will leave you with is of that top 10 customers in the quarter, 5 were carriers, 3 were outside of North America. We had four customers in the top 10 that were either cloud or cable and one enterprise customer. So, to me that is - it is really good in terms of the diversification and it is not something that happened over night. That’s been work in progress by the team for quite some time. It speaks to the strength on the go-to-market side as well as the relevance of the products across multiple customer types and so we are pleased that with that progress.

Excellent. So here is the question for you Robyn that Juniper obviously is engaged in many new initiatives programs, many different types of customers to work with, how would you look at OpEx as a percentage of revenue for the remainder quarters of the year, you see that trending up as you get into new project from an NFE on the service provider side. The Web 2.0 cloud have their own idiosyncrasies in terms of how they want to work with you, how should we look at OpEx? Thanks.

Yes. So, OpEx as we’ve talked about before for this year, for 2015 we have set a goal of $1.9 billion plus or minus $25 million. As we move forward, we said earlier that we’re committed to the 25% operating margin over the next three years. As we grow revenue, OpEx as a percentage of revenue, will start to come down. And so, we’ve talked about that for quite some time. The structural actions that we took last year and the cost areas that we continue to work on are a testament to that. So we are committed to doing that in a balanced way so that we can continue to grow the business over the long term.

Okay. Thanks. Good luck to you and your team.

Thank you.

Thanks, [indiscernible].

Thank you. The next question is from Sanjiv Wadhwani of Stifel. Please go ahead.

Thanks. Rami, a question on the switching side. Last year in the first half, you did really well in the switching touching $200 million in revenue in the June quarter which historically has been tough to get there. I’m just curious you are tracking about $20 million, $30 million below that number. What’s changed between last year and this year, and what gets you back to that $200 million or north of that? Thanks.

Yes, sure. Thanks, Sanjiv. On the switching side, let me sort of try to breakout the business and then probably shed some light on some of the observations that you’ve made. There is a service provider and an enterprise component to our switching business. The service provider side especially as it pertains to cloud has actually performed quite well and that includes performance in the Q1 timeframe, the quarter that we just wrapped up. The enterprise side is a bit of a mixed story which is what you are seeing right now, observing right now in the numbers. Cloud as it pertains to enterprise, so private cloud type deployment as well as enterprise IT datacenters has actually done quite well. So that area of the business just I think because of the focus and some of the newer product introduction has helped us grow in that area of the business. On the campus side, you have to understand that we’ve just sort of done a bit of a campus pivot in our switching business or in our strategy all up that includes taking some of the products that we had in-house, take our SSL VPN business, our Pulse business, the wireless LAN business and we pivoted there to a partnership approach. And I think that that strategy needs to play out over a number of quarters before we get to some sort of stability and return to growth if you will. Once that happens, I think that will create the environment if you will for all of growth in switching. Last but not least, clearly we have been competing even in the datacenter without a complete portfolio of products which we are just about to plug if you will with the innovations in the QFX 10K product line that we have just announced and we’ll start to introduce for our customers in the middle of the year. That gives me more confidence again that I think that switching can be a good growth engine for the company going forward.

Dany, are you still there?

Yes. Our next question is from Ittai Kidron of Oppenheimer. Please go head.

Thanks. Rami, I want to drill into that switching segment that Sanjiv started. First of all, can you give us a list of qualitative assessment of the breakdown between your datacenter and your campus wiring closet switch just from a revenue breakdown standpoint?

We don’t break it down but I will say that they both represent pretty meaningful portions of the overall switching business, Ittai.

Okay. And then regarding your, the new announcements that you’ve made is very exciting the new switch, but you’ve had a couple of switch cycles in the past and you’ve kind of fumbled on them whether it be the QFabric and even the high end of your modular portfolio, the 9200 and the 8200. They never really managed to catch any traction. It seems like that can modular. You’ve always had very difficult challenges. So what changes in the next cycle?

Well, I mean at the end of the day these are just words and it’s the numbers that are going to have to prove our thesis if you will of our competitiveness in this space. But all I’ll tell you is that, we have learned tremendously, tremendously from the lessons of introducing the products into the market that are in the market today whether they’d on the EX side or the QFabric side and so forth. And we have taken all of those lessons and applied them over the last couple of years as we were developing these new products into the development of those product lines. And we have now been talking to many of our customers about this product line for quite some time and so far what we’ve heard from them and in fact some of the them had early access to the products and in terms of an ability to actually kick the tyres on them. The feedback has been quite encouraging. Now we have a lot of work to do to finish up testing, ramp up production and get these products into the market. We are doing exactly that right now. But I feel really good about the prospects of this product line.

Okay and very good. Lastly, from me, HP announced its acquisition of Aruba, that was your Wi-Fi partner since you’ve exited your Wi-Fi business. Any thoughts on how you plug that hole since you’re trying to plug a lot of holes.

Yes. Fortunately, I don’t consider this as a hole at least not right now. Now, things could evolve in certain ways but at this point in time, I am very close to the Aruba executive team. I’ve talked to their CEO. That partnership continues. The foundation of that partnership is one that is based on open interfaces between our technology and their technology. So having the ability for our customers to choose battery technology is fundamental. And anybody that lose side of that will lose just because our customers will not accept anything else. And I think that’s the thing that makes this solution a) long lasting, but more importantly or just is importantly it gives our customers the ability to interchange either at Juniper or the Aruba side with different types of technologies.

Very good. Good luck.

Thank you.

Thanks, Ittai. I think we have time for one more question.

Thank you. The next question is from Brian White of Cantor Fitzgerald. Please go ahead.

Yeah, Rami, looking at the enterprise market, it was much stronger than seasonal on a sequential basis. In fact it was the best since the first quarter of 2010. So maybe you could walk us through some of the drivers I know Robyn mentioned enterprise routers. But what’s the dynamic in enterprise that it came in so much stronger than seasonality.

Okay. Thanks, Brian. Let me start, yes, we are pleased with our enterprise performance at least from a sequential standpoint. There are a couple of dynamics here. First and foremost is from a industry vertical standpoint, the government is actually helping here. We are seeing good strength in some projects that we have with the government agencies and this helps us and switching helps us and routing it also helps us to some extent and security as well. Beyond that, the focus that we have on this transformation that’s happening towards cloud based service delivery is very important. So we are working right now with a large Fortune 500 company and building out their cloud infrastructure around the globe. And that is a testament to the strength that we have in our MetaFabric architecture and the switching product that we’ve introduced into the market. It’s also a beautiful example of how security ties in really effectively to complete the cloud solutions that we offer to our customers. I expect that to continue.

Okay. And just around the product cycle, when is the bulk of the products hitting the market becoming generally available in the second quarter or third quarter? Thanks.

It starts in the second quarter but it actually goes throughout the second half of this year.

Okay. Thank you.

Thank you. I would now like to turn the conference back over to management for any closing remarks.

Okay. Thank you. Thank you everyone for joining us today. We appreciate your participation and your great questions. Before I close, I just want to give a head up for the Juniper IR and SG&A team that worked out the new format for today’s call. We hope you found it helpful and we love to hear your feedback. Thanks everyone. Talk to you soon.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.