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Juniper Slips: Some Margin Hit Pays Off, Says CEO Rahim

Following better-than-expected Q2 results from networker Juniper Networks (JNPR) this afternoon, and a forecast in line with consensus for this quarter, chief executive Rami Rahim was kind enough to talk with me by phone for a few minutes.

Juniper shares are down 46 cents, or 1.5%, in at late trading.

As I mentioned in the prior post, investors were obsessed on the conference call with the issue of gross profit margin, which slipped from the prior-year period. Juniper’s CFO noted the “mix” of products sold, and the mix of customers, is having an impact, as switching and cloud computing see high growth. (He also said there’s some impact from rising component prices.)

Rahim indicated some hit to margin pays off by allowing Juniper to develop new business and make profit in dollars grow with revenue:

It’s obviously an element of our P&L that people pay attention to, and what we point to is the following. We’ve grown revenue with that gross margin, and we have made a very deliberate decision to go after net new footprints that typically require a little more price concessions up front, in order to break into these opportunities. But that will ultimately pay off for us in the out-years. If revenue was declining, that would be a different picture. But we’ve got good top line growth, we’ve been disciplined in our operating expenditures, and I think most investors are focused on the EPS, which was up 14%, year over year, last quarter, which is a very good...