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Juniper Networks (JNPR)

February 28, 2012 10:00 am ET

Executives

John Nunziati -

Kevin R. Johnson - Chief Executive Officer, Director, Member of Offering Committee and Member of Stock Committee

Stefan Dyckerhoff - Executive Vice President and General Manager of The Platform Systems Group

Robert L. Muglia - Executive Vice President of Software Solutions Division

Analysts

Unknown Analyst

Mark Sue - RBC Capital Markets, LLC, Research Division

Brian Marshall - ISI Group Inc., Research Division

George C. Notter - Jefferies & Company, Inc., Research Division

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

John Nunziati

And typical of Barcelona time, we're a little bit late today because of some shuttle traffic but we appreciate that you could all make it. We've got a great turnout here. And then those of you on the webcast, thank you for waiting. We're glad to have you as well. I'm John Nunziati, in case I haven't met any of you yet. And also with us here today from the Investor Relations team is Lisa Hartman.

Today, before we get started, I want to make sure that I remind you of the fact that our discussion today could contain forward-looking statements about Juniper's business outlook, economic and market outlook, future operating results and overall future prospects, and those statements may include a number of risks and uncertainties. And of course, actual results could differ materially from those implied in the statements. For a full discussion of those risks and uncertainties, see our 10-K filed with the SEC, February 24, 2012, and also available on our website.

Looking at the agenda, today's focus is going to be on our strategy and technology and innovation. Stefan Dyckerhoff and Bob Muglia will address that. And after their comments, we'll open it up for questions. A reminder, we're not commenting on business outlook or the current business environment. So as we get to the Q&A session, question us appropriately. Also, please mark your calendars for our Financial Analyst Meeting, which is going to be Tuesday, June 12, and we'll hold that in Sunnyvale.

Now, before Stefan and Bob come up, I'll have Kevin do some opening comments. With that, it's my pleasure to introduce Kevin Johnson.

Kevin R. Johnson

Well, thanks, John, and good afternoon, everyone. Thanks for joining us this afternoon in Barcelona. The real agenda topic for today is to give Stefan and Bob a chance to share with you our innovation agenda around this concept of the new network. And before we did that, I thought I would just punctuate a couple of things. Number one, the innovation agenda that I'll share with you really is focused on these 2 market trends of mobile internet and cloud computing. And we think those are 2 market trends that, over this next decade, will continue to unfold and continue to be a significant driver of opportunity in the marketplace and a significant area for innovation. I'll just remind you, there really are 5 key elements of the strategy that we're pursuing and these 2 guys will highlight that a bit.

First of all, we are a pure player in high-performance networking, and we think that is a very good business for us to be in. It is where our skills are. We've got 100% of our workforce that is completely dedicated to that, the domain of high-performance networking. In fact, we think that this is roughly a $45 billion addressable market, of which in 2011, at roughly $4.5 billion, we're roughly 10% share in that market. We think that's a market that will grow over the next several years and it's a market that we can innovate and add significant value.

Second of all, we clearly are focused on being an innovator. And as an innovation leader in the industry, in this domain of networking, it means that a big part of what we hope to do is pick the right projects, pick the right areas that we can invest in R&D and deliver things that are, a, highly relevant to our customers and, b, highly differentiated from our competition. And I think that these guys take you through the things that we funded, how we're thinking about this long term. I think it will reinforce that.

Third, this R&D investment that we make, we think it's important strategically that we build products and technologies that allow us to monetize that R&D investment across both the service provider sector, as well as the enterprise sector. And certainly, our heritage in service providers is a good foundation. We continue to build and grow in that sector. But as we build across the domains of routing, switching, fabric, security, in every one of those product sets, we look for how we can monetize that investment in R&D across those 2 sectors.

Fourth, the element of the strategy is to continue to diversify the customer base. And I think in 2011, for example, in the service provider sector, we added over 150 new service provider customers to the portfolio of service providers. Many of these Tier 3 smaller service providers, but opportunity for growth nonetheless. In our enterprise business, I think we now have over 30,000 enterprise customers that have engaged Juniper and deployed technology in their enterprise. And certainly, at a very high end, you take the top 1,000 of those, we're very focused on putting the resources in place and expanding into those customers. But diversifying the customer base is very key.

And then fifth is the work that we're doing around complementing our system strategy with the software element, and the software is Junos-based software. So the fact that we've invested and built a systems platform and an operating system around Junos, we now have opportunities to expand our offerings with software solutions that run on top of Junos. And so with Stefan's role, leading Platform Systems division. His organization's focus was on the complete range of products that we have that are shipped in the form of systems. And then certainly, Bob's role, leading our Software Solutions division. Bob and his organization building software solutions on top of Junos, around areas such as security, the work we're doing in device management, the work we're doing around services that run on the edge of the network.

And so with that, I'll go ahead and introduce these 2 gentlemen and turn it over to them to facilitate a few comments and then to open it up for question-and-answer. So Stefan and Bob, welcome. Thank you.

Stefan Dyckerhoff

All right. Good afternoon, everybody. Thank you for joining us. So what we're going to do today in the presentation for the next 30 to 40 minutes or so is walk through the innovation agenda, how we think about the products but with a lens of what's the value proposition for the customer. How the customer actually absorbs this technology, how do they deploy it, and hence, what's our value proposition and our competitive advantage. And I think that's a very important way you want to scale the way we bring our technology to market, so we're going to focus on that today.

The concept that we've come up with is called the New Network Platform Architecture. So this is really how we think customers will build the new network. We have the new network vision about how we enhance the economic experience. We need to work with our customers on how they actually make that a reality for their networks. And sort of at the core of it, it consists of 3 things. It consists of our systems business, where we differentiate with performance, with TCO, with reliability and the service that those systems can deliver in the network. We're very focused on our people. We have a very deep bench of technology leaders in the company.

And one of the ways that our customers really appreciate interacting with us is working with them on architecture problems in an open way, right? Not pushing various things on them but really working through how to evolve their architecture. And that's true for both the biggest firms, as well as the biggest enterprises. And then last but not least is our software assets. And they consist of the Junos software that runs on all of our systems and give that kind of simplicity and consistency of the infrastructure, and the software business that we're building on top of that Junos platform. And that's where you come.

Robert L. Muglia

Great. Thanks, Stefan. So I'm new to Juniper, I joined Juniper 5 months ago. I came from Microsoft, where I was there for about 23 years. And so it's fun coming here as a software guy joining a company that has been traditionally much more focused on systems. And one of the interesting things when you join a company leading a division is one of the first things you have to do is talk about the strategy for the division, particularly if it's a brand-new area for the company because we never really had a software-focused division.

And the first thing I said with that is that there is no separate software strategy from the work that our systems and platform teams were doing. We really have one unified Juniper strategy that extends between the systems organization and the software work that we do. And we need to think about how we bring software services together with our systems to market, touching both our enterprise customers and our traditional service provider customers. And in terms of that business opportunity, the thing I think is most interesting is that we have a tremendous opportunity to grow Juniper's top line and bottom line associated with driving forward software is very closely related to our platforms. We don't have to wander far.

There's a lot of areas we could branch into. And you know that you never say never, you don't need to -- never cut anything off is for the long term. But when I look at our opportunity to grow the businesses that we have by adding a tremendous amount of value on top of the MX, very, very important on top of our security products and driving more security solutions out there, touching the end user with what we're doing in Pulse. There's a tremendous opportunity to grow the business overall.

So that's what we're focusing and I think it's important for me to start with that. Some people have an idea that the software business is very closely linked. And Stefan and I work, and our teams work incredibly closely together. And we're not going off in some brand and different direction or anything. There's a lot of people that always want me to go off that brand and different products. So with that, when you talk about how you think about this. And this slide in a sense is really the structure for this entire presentation today. And Stefan and I will take you through this -- all of the different, we call them domains, associated with how we take and bring network technology into solutions to market.

Now traditionally, Juniper has been a box company. We have sold hardware solutions to our customers to meet specific network challenges they have. And we've augmented that over the years with security focus, clearly with a network focus varied into router company. We've branched into areas like security, clearly in areas like switching business, very much focused on the platforms and the systems that we sell. And don't get confused as we go through this and talk about this from a customer-focused solution perspective, that we still love boxes. We still love building the fastest, baddest boxes on the planet, and we will continue to do that. I mean, we are -- speed and feed has been a significant part of what has made this company great and the best technology associated with point networking solutions are critical, and they will stay critical.

But what we've done here is in the way we're working together as a company is a fundamental pivot in terms of thinking now about it from a much more customer-centric solutions perspective, where we take the hardware solutions or the hardware products we have together with software products and work to build an overall solution very frequently with partners. I mean, typically, we are working together with partners to deliver these solutions to our customers, at least in the form that they're doing systems integration for us, because that's not really a business we're in. We're a product-focused company.

And so when we go about thinking about how we work with our customers, whether it's our sales organization, our marketing organization, services or Stefan and I, we start with a customer-centric view. What are the business challenges that our customers face that from a networking perspective Juniper can help to solve? And that's the fundamental focus. And that's what the New Network Platform Architectures are all about. They're starting with a customer-centric view as to what challenges and we've split those challenges up into 7 domains.

Now the term domain is commonly used in the networking space. It's often used by our service provider customers as areas of business interest they have. So this very much follows the way our customers think about the challenges they face. And as I said, these areas of focus include our go-to-market efforts, include our support efforts in marketing and they include very much and perhaps start with the product development that we do. But they're focused on what the customer cares about.

Now, in understanding the industry, understanding our customers' needs, we've divided this into 7 different domains. Three of those domains are targeted entirely at service providers. So their business challenges that service providers have but enterprises don't have. And that's access and aggregation, the edge and the core. And we'll talk about each one of these in-depth. I mean, the 2 of them, each one exactly what they are. There are 2 domains that are targeted only at the enterprise, challenges that the enterprises have that our service provider customers don't, and that's in Camp Branch and the WAN.

And then finally, there are 2 domains that really are business challenges that are faced by both service providers and our enterprise customers, and that's the devices space, because devices are very much a part of carrier networks, and of course, they're critical to the enterprise. But also, the data center because both service providers and enterprises are building out significant as we move forward cloud-based data centers. So that's the 7 domains. And as we go through, and as we go through and talk about each one of these domains, you'll see that we included a TAM associated with each domain just to give you an idea of the market opportunity that Juniper is looking for within each one of these areas of business interest for our customers.

Now, I will point out that there are some horizontal things that span all domains. And we wanted to highlight 2 of them. One is security and the other is our common platform that we use across all of these domains, which is Junos, a common software operating system that spans across all of these domains. And it's important, I'll focus on, and including Junos, is something that we use across most of our product and we use it in all of these different kinds of solutions. But I want to talk a little bit about security because we have to think about security very much as first and foremost the way it applies on a per domain basis. Security is different in the data centers. You use the products differently in the data center than you might in a campus and branch. It's important for us to solve our customer problems. It's important for us to do that.

At the same time, there is -- it's important to think about security from end to end in a horizontal way. So it's important to highlight it separately. And the only other thing I'll say on this is that when we go through the TAM on a per domain basis, that will include security. So what we've done is we've taken the security market that exists and we've split it, working with some analysts, we split it to get within these 7 domains, these areas of business opportunity. So there isn't an individual TAM for security as we've broken it out this presentation. Of course you can do it differently but this is more consistent, focusing on the domains. It's really the way our customers think about it and that's what we want to do, is do things that our customers want. So, Stefan, I can have you start with the domain.

Stefan Dyckerhoff

Thank you. And this really ties into, at the last Analyst Day, we talked about these architectural transitions. If you want to work with a customer on architectural transitions, you need to frame it in the way that they build the network. And so this gives it a structured way to do so and it actually helps drive our R&D roadmap, as well as enables a conversation with customer. So, let's start with the first domain, access and aggregation. And this is really where end points connect into the network, right? So it will be, in mobile, the first off that radio, the cell-type router, the aggregation switches that sit behind a DSL bank or that sit behind in all fiber connectivity. And connecting those into the network and going to the service edge. And that domain, that traditionally we have not been in. It's about a $3 billion, $3.3 billion TAM. We're going to cite 2011 numbers for everything here just because, going forward, the estimates vary quite a bit and it's harder to do the math. So In 2011, about $3.3 billion spend on the access and aggregation, of which we have precisely 0 share.

And so why is that? Well, we haven't had any product in this space, right? And in fact, we launched a new product line last week called the ACX that really will drive us into the space, solve a very important problem around access that was wired. So let's start with what are the key care about here? What's happening in this domain? Every one of the service provider customers has a challenge around what we used to call mobile backhaul -- we still call it mobile backhaul. How do I get all these data from the cell site into my network? It starts with radio challenges and then it quickly translates to the fact that I don't have fast enough microwave, I don't have fiber to enough of the sites. And so they've had to invest very heavily there and they've really done it on a short term basis, so far. Just replace the slower TDM links with either multiple TDM links or with a layered Ethernet kind of connection.

Now, they look forward to 4G and they know that this is going to continue to be a challenge to them. And a lot of them now take a step back and say, okay, what do I do structurally to this part of the network so I don't just throw money at a problem on an emergency basis? What should be the architecture of that part of the network? And clearly, one of the things that drive them is the quality of experience for their customers. So customers complain very loudly when the radio or the backhaul doesn't work and they're frequently the bottlenecks, particularly in high usage, dense metropolitan areas. So they know they need to invest but they need an overall architecture to drive to. The other thing that's happening here is that for all the service providers that are converged, both fixed and mobile, a lot of them are either rolling out much faster DSLs or rolling out fiber. And so they're going to have challenges in that part of the access and aggregation network as well.

Now when they look at the business case, they say mobile is driving my top line and my profit so I need to make sure I solve that problem first. And then I'll try to solve the fixed line problem as well. So they're looking at, what can I do to be smart about investing in this part of the network if I do have a fiber rollout and I invest in new access and aggregation infrastructure, to haul that back to the service edge, how do I do it. So that's really -- from talking to many customers, that's what's happening in this space. Our strategy for the space is kind of familiar from the edge side. So on the edge side, we started with a decision that takes to wireless, residential and business services, that will converge at the edge. And so we had this strategy called the unified edge and we've had very good success to that driven by the MX platform.

There's a very similar problem in the access around these different infrastructures. In fact, a lot of our customers' access for business customers is yet different from access for residential customers. And then, of course, you've got fixed and mobile. And thirdly, what we launched last week, we call Universal Access, and really talks about how to integrate the access and aggregation infrastructure for both fixed and mobile. Now, when you do that, as I mentioned, the business case will start with mobile. You have to be really good at fixing the mobile problems. And you have to show that the solution can actually accommodate the fixed line as well. And so the ACX [indiscernible] line does exactly that.

There's 3 key advantages that customers get when they go to beyond just sort of trending their -- the duplication of the investments. With the ACX, they get a relatively small, environmentally hardened system that is extremely high performance. Because everybody needs to go from -- to 10-gig as the way we address cell sites and from a backhaul point perspective. The second thing is actually deploy these unified services for fixed and wireless, you must have an architecture where you can differentiate the service level all the way out to the access and aggregation of the structure and it has to be managed in an automated way. And so, the architecture that we have put forward for a while now is called a team of MPLS, basically talked about how you build end-to-end MPLS networks where you can define service levels in a real-time automated way.

And then finally, we've looked and bought a company called Brilliant Telecommunications last year at this time at the World Congress. We closed the deal, and that company had a world-class assets in network-based timing technologies. Timing is the key asset here, and for most of the world, ASPs cannot use GPS. And in fact, as we go to smaller cells, GPN often doesn't have -- so timing -- network-based timing will be very important for customers here. And we've integrated that into the ACX product line but also then provide a management system that can provision MPLS, provision timing on top of Junos Space. So I think it's earlier days for us but the product will be commercially available in the second half of the year. We have a few trials going on already. But we think a very exciting value proposition for customers as they make the next round of investments for 4G and LTE.

Robert L. Muglia

I think it's fair to say that with the addition, we're leading the marketplace in terms of how in this unified MPLS all the way out to the cell sites and having that unified management and timing.

Stefan Dyckerhoff

Absolutely and nobody has this class of product. Just like the Universal Edge, we're trying to create a product category, not violently different than what they have been -- different enough in those 3 key aspects. Performance, seamless MPLS and timing all integrated. All right, very good.

So let's switch to domain #2. This is one we're much more familiar with. The Edge continue to drive our growth. Certainly, spearheaded by the MX product line. The way we talk about this to customers is that this is where services get created in the network.

So what does that mean? You recognize what the customer does, what their contract is, what their service level is and you assure those services and implement those services with policy that gets instantiated and then forced at the network. Terminology here always get a little bit confusing. The wire line guys call it edge and the mobile guys call it core. And so we settled on calling it edge, but clearly it includes our vision of Universal Edge, which has a wired and wireless. And so in particular, the MX, MobileNext and all the things that go along with that. The MX is clearly the biggest product line we have. It is the biggest TAM that we address on the SP side. And it will grow in our estimation over the next few years.

Really, the problem here is, it's quite familiar from the last years. Exponential traffic growth is one. So you have to get the economics under control, which again leads to a unification of the edge architecture. But more than that, you have to actually start to monetize some the services at the edge. So service creation for new business services, security services, linking to intended delays for potential future cloud services, all those are things that are on our customers' mind when they think about the network edge.

Also here, of course, mobile is leading the charge in terms of growth. And again, here, customers have invested heavily on the mobile side, but really are looking for an answer for the overall architecture, to scale service as the prospect of access media. There's clearly a big conflict going on in terms of monetization of services. Our network service provider customers need the network edge to monetization new services. But in fact, even the mom and pop players are looking at their network edge but sometimes either taking to another service provider or at the edge of their data center and say, how can we offer value-added services that tie other assets to a guaranteed quality of experience? So there's clearly a battle for wallet's share here between the different players. In the end, I think, none of us [indiscernible] that service creation this part of the network will define their success. Capacity, reliability, quality of experience get implemented here and this will be key.

Robert L. Muglia

In many ways, system is the key domain for our service providers in the sense that in one hand they're chasing explosive growth in their networks, particularly being driven by wireless as they transition to LTE, which really dramatically expands the amount of capacity that's going to flow through these networks. And at the other hand, they see this need to be able to monetize that much more effectively and they want to have the ability to add and offer a set of flexible services surrounding quality of service, the ability to have different kinds of billing programs and different kinds of service levels for customers. And so what they need in order to do that is an underlying platform and infrastructure that both can handle the incredible capacity and at the same time allow these applications that they want to create to be built and thus, they can monetize effectively.

Stefan Dyckerhoff

That's exactly right. So as a result, this is probably the -- one of the domains where we work together the most closely. And so the strategy for us is very clear and unchanged. It's called the MX. It's called the Universal Edge. And what we've done in the last year is really expand the product line. The fact that we can now go from a very cost efficient MX5-type platform, a few gigabits worth of throughput for a small location, all the way out to a terabit platform with the same silicon, the same software, is very compelling. And so that's how we actually, for our customers, can really give them an advantage on efficiency of capital. They now don't just converge networks, they use the same platforms, they can reuse them in other parts, they have common sparing. And this is a real headache for very large-scale SP networks.

Robert L. Muglia

Well, I think if there was a competitor that's down the road, first name starts with C, if they had this slide, how many different platforms would they have to have? Three? Three different platforms they would have to be able to create with all these different incompatibles?

Stefan Dyckerhoff

It's more like 5.

Robert L. Muglia

5, okay.

Stefan Dyckerhoff

And so why that's so important? Because if you tune your service creation to -- and your policy engines and everything else and it worked differently on different platforms, you cannot have consistency of experience across different access media and different services. And in the end, that's something that will drive their profitability.

Robert L. Muglia

But if you think about the challenge a service provider has, they have some edge -- some of their part of their edge are very large in geographic areas, have a lot of people in it, some are much smaller. They want to have one common platform that enables a broad set of services to be built and commonly deploy, commonly manage across their environment.

Stefan Dyckerhoff

And we're the only ones who can do it. So in other words, what's happening beyond the divisional edge routing, MPLS VPNs, IPsec VPNs, you have -- so there's a whole lot of new things to get implemented here. In fact, if you look at a service player pop, next to their [indiscernible] a lot of times they have a plethora of appliances connected with a plethora of switches and it's the complexity and scalability, the high availability of managing that is just outrageously difficult and expensive. So the value proposition of Junos to the platform really comes into play here. And so the thing that we already deliver, that you already deliver on top of the MX platform, range from video delivery to security to MobileNext. It's a very rich portfolio and maybe you just want to say a few words what you see there.

Robert L. Muglia

Yes, to just to Stefan's point, what our customers, our SP customers, have is separate boxes essentially that are deployed. And in fact, we just had a meeting this morning with a large carrier, who is facing exactly this challenge. And they are seeing that explosion of traffic and they want to add more services. And what we can offer with the MX platform is really the common services platform. You see that, indicated here with the SDK, which allows a set of services that we build, as well as partners build, on top of the MX. So we're focusing -- and one of the key areas of investment in my group is to take and build a set of services that can all work together on top of this common platform that Stefan and his team builds with the MX. And we also opened that up to partners and we have examples here of load balancing for example that's provided by a third party in many carriers, in this case it's a company called Radware, built on top of our platform and enables that set of services. We build other services ourselves, and had a lot of excitement, a lot of carriers using the MX for carrier-grade NAT. This is an important way we will be able to work and insert our mobile packet core into customers. Because again, it's one of a set of services, a broad set of services that are enabled on incredibly high-performance MX platform.

Stefan Dyckerhoff

And a lot of they can see on the slide are shipping. So carrier NAT, we've had a lot of success. Usually sits next to the media center, same with firewalls, same with load-balancing and increasingly also video delivery. And so for those reasons, we really feel like the CapEx and OpEx advantage that we talked about, something like 2/3 lower OpEx if you really consolidate all these devices and somewhere between 40% and 60% lower CapEx. We can realize those in these applications because there are just a very large number of devices from different vendors, different OSs that can be consolidated. And to push the scale and the fact that even mobile is under pressure for CapEx and profitability, certainly more so over time, really makes this compelling.

All right, so let's go on from there to the core of the network, where it all started for us. The TAM is about a $3 billion -- this does not include some of the optical pieces that we've talked about. This is the traditional core routing TAM. And the observation here for the core of the network is that traffic is obviously growing fast, even with things like caching and content distribution and so forth is growing very fast and this is something we've talked about a year ago and it's become highly unpredictable. That turned out to be true so that you can no longer provision things in months or weeks or multiple months for most of our carriers. There's really the traffic flow, the traffic spikes across the core are getting much more dynamic. And that's creating OpEx and additional OpEx and CapEx strain on the network. Clearly, a lot of customers still run multiple cores, sometimes to add just a bit for capacity, sometimes they split the services. And clearly, they're still running multiple networks from an IT MPLS network, a sort of a switching network, and then the optical transmission.

Robert L. Muglia

Which is about all of them are.

Stefan Dyckerhoff

Pretty much all of them. It seems like they all run a set of, in many cases, very legacy networks that they're just dying to get off of. But they have not -- because each one of these networks have quite high capacity demand, they have not really had a way to be able to converge that and move to a common modern architecture. The other key pieces that are happening here are around technology. So there's a big inflection point in optical around something called compare and detection. And I think now, everybody is seeing it. I think a couple of years ago, we did the first whiteboard session, there was a -- with Pradeep and I, it was less clear, it's becoming very clear now.

So why is that such a big change? It basically says that a lot of the -- this sort of analogue block are moving off the existing -- moving to the digital domain. It's moving to digital single processing, which means you can build silicon in mainstream silicon technology to solve this problem. That's why we acquired intellectual property around, some OpEx around it, and this is going to become part of our silicon strategy. And it's important to the customer because the amount of cost of the optoelectronic and the network is becoming increasingly larger. So they can take out conversions of optical to electrical to optical out the network, they will get huge CapEx efficiencies in addition to having a much simpler network.

And then finally, power costs due to come, a big issue here, power and cooling costs. Very similar to what we see in the data center. So I have lately reused this slide from a year ago since the value proposition hasn't changed. We see a multiyear transition of the architecture to merge these 3 different levels. And then there's usually another merging of different core networks on the IT MPLS that's happening at the same time.

And they get enabled by the PTX in a couple of important ways. The first one is that if you want to make a move, you want to move to 100 gig, you need to have a very dense 100-gig platform. So the economics really work out if you have the right level of density. Very similar to what happened 10 days ago with the T series where we got critical mass of 10-gig density and all of a sudden, we could change the network architecture, make it much simpler, and really got the economics out.

And the second one is the platform is ready for optical integration. In fact, we clearly are not on the market yet, although we're already getting there with a few key partners. So they will see next week, we'll show the PTX, we'll show some of the legacy equipment, how it can connect in and how we can then integrate with optical in a more seamless way from both a system and a software point of view. So this is very important. A year ago, I stood up and I said it's going to ship in Q1 and it's going to ship in Q1, which means in the next few weeks. We've had very positive feedback from our trials and we're very excited about this product. I think it's -- it is an architectural sale so it takes a while to qualify, but it really changes the game from a core perspective.

Robert L. Muglia

So I have one thing, which is just talking to customers, people get super excited about this project. This product is really engaging -- I think this product is very cool to me, because it's because of the fact it's not just the density in all of the 100-gig links, as an engineer that's kind of fun to think about, but what's more important is the way it can change the dynamics of the network and allow customers to take and really transform the networks they have. In talking to carriers, most of these carriers have multiple core networks. Some of these things have been around since the '80s and they go back forever and they have not been able -- they've not had a solution that allows them to move forward. And this is the product that enables it. To Stefan's point, the sales cycles are long, it takes a long time to evaluate. So it's not the kind of thing that jumps out of the gate and simply -- but the kind of opportunity that's available because of this product is really tremendous.

Stefan Dyckerhoff

In the end, it comes to a few hard numbers as well. So it always has this density. But if you compare to the competition, it's 4x the capacity and 1/3 of the power. And just a measure today, seriously versus PTX, those are the economics. It gets us to critical mass of 100-gig connectivity, which is why you can change the network architecture. But piece here is not standing still. So, again, this is something your customers do. So we have these cores and there were sort of half edge, half core. Either a lot of services, the whole thing or another thing, they were mixed into their core. With the PTX, we're saying is you have to build this 2 before. You have to build this MPLS sensible core that can get you the efficiencies but is fundamentally simple.

The traditional cores will continue existing because you still have these problems of wholesale and maybe very large business customers coming in at 100 gig that you might not want for a reason -- for a network design win to put on the universal edge. And so with our big installed base of the T series, we're seeing a lot of interest in upgrading the T series that we brought out. So this is something that can happen in service, you can keep the existing interfaces. It's a very cost-effective way for customers to more than double the density. And the thing to remember is sometimes we get so excited on PTX, this, the T4000, on a per slot capacity, which is the way we measure power and cost per gigabit, is still 2x the capacity of a TRS3 [ph]. So it's a very compelling value proposition. It really plays well as we expand into different markets, from a geography point of view, as you build up the sales force, as well as upgrading the existing installed base.

Robert L. Muglia

And this one is shipping our time, too.

Stefan Dyckerhoff

That's right. Thank you for reminding me. This one is also shipping in the next few weeks for the general availability. We had shipped it, as we mentioned in the conference call, to 2 customers, Telefonica and Comcast in Q4. So we're -- I'm very happy with the team's execution. These are not easy things to predict the year out but they did a good job in making sure that, that was finished. All right, so I think it's time for you to talk a little bit about the data center.

Robert L. Muglia

Data center. So there's a lot of very interesting things happening in the data center right now. It's an area of focus both for service providers as well as for enterprises. Clearly, it's an area where there's been a lot of investment over the years but as we see this convergence towards cloud, private clouds in particular, public clouds as well, there's a tremendous opportunity for customers to really transform the way they think about building out their data centers and the kind of economics they can get for deploying applications.

The networking side of the data center is a big market, as well as it's just shy of $10 billion. And this is an area where, again, we have relatively low share. It's part of our switching share number, so it's single digits sort of share and we have a tremendous opportunity to grow in this space. And we see ourselves as being quite well-positioned. In terms of what's happening...

[Technical Difficulty]

Robert L. Muglia

So what's happening in the data center is basically customers are moving towards the cloud environment. And they're asking themselves, what does it mean? What do I do with my IT assets? If you're an enterprise customer, you have a wide variety of applications that you're running inside your environment, you want to drive much more efficiency associated with that and customers are thinking about how they make these decisions as they deploy the next generation of applications.

Now, some of those applications are needed for their business but they're not differentiated. So applications like collaboration, e-mail, often CRM, those are all examples of applications that customers say, hey, I need a world-class solution in this for my end users. But I'm not going to differentiate my business based on that. And those are areas where public cloud providers are very interesting to customers. And we're talking to all those guys. There's opportunities for us to sell into all of those guys that are providing these public clouds.

Perhaps the much larger opportunity, however, is -- and perhaps the most important business challenge customers face, is for their business-critical applications, the apps that they build that are differentiated in their environment. And almost all enterprise customers take the approach for those applications, that they need to continue to run it within the data center that they control. It may be an outsourced data center, but it's still one that they have control over, and in those cases, customers are focused on building private clouds.

Now everybody's heard about these public and private clouds. And it's important to talk about the differentiators of those clouds and why these things really are somewhat different and how it impacts the networks. So, to me, the best way to do this is to kind of go back historically and I had a lot of experience talking to customers on this in my previous work with Microsoft. If you go back 5 years or so, it was a physical world, there really was very little virtualization that was used. And in that sort of an environment, when a business unit wanted to build an application and deploy an application for their users, they would go to IT and they would say, Hey, I've got this business application I want to create. And it would work with IT, and IT would figure out how much resource they needed. They might need a half a dozen servers, a certain amount of storage and networking. And IT would say, Great, we can order that, it'll cost a bunch and we'll put that order in for our supplier and it will be in, in about 4 weeks and we should be able to have a provision for you in about 6 weeks or so.

Well, virtualization changed all of that and most customers have deployed some form of virtualization right now. And in that sort of a world, they have shared resources, shared storage, shared networking and of course shared server. And in that sort of an environment, other business units still goes to IT and they talk to the IT guy, the IT person, and they say I need this application developed. You just say, Well, okay, that will be 1/2 dozen virtual servers and this much storage and networking, and I'll provision that for you. And today is Tuesday, I should have it for you by Friday. So it takes a few days to actually manually provision those resources and the app is up and running.

Well, the difference between a virtual environment and a cloud environment is really that everything happens in a way that is much more automated. And instead of having the IT person and the business unit person talk and IT manually provision the resources, the business unit person goes to a portal, much like the portal for Amazon Web services and says, I want to provision these set of resources. And then the system automatically deploys that and automatically manages those resources. So instead of it taking 3 days to provision the resources, it takes about 15 minutes. And that changes everything.

I mean, moving from something that is relatively static and manually placed by a person to something that is fully automated and fully run by a system, means that those resources are now totally dynamic. And networks just weren't built that way. They just were not built that way. And in fact, almost every employed network inside data centers just don't work that way. When you want to configure the systems, somebody has to go to a keyword and type the IP addresses and setup the different environment. And that's a fundamental change. That change is really fundamental. And so what we've done is we've really built -- we're really building a system that's designed to work for both the existing environment that customers are deploying, very high capacity, very manageable traditional data centers, but also focusing on this next generation of cloud-based dynamically provisioned environment. And so the first thing we've done is we've taken off our networking assets that we have and switching and really re-thought that in a completely different way and have built this QFabric environment, which collapses everything to one tier and essentially allows an entire set of data center switches to be managed as one -- as if it were one switch.

Stefan Dyckerhoff

And it's the move to cloud automation that really makes the one entity to manage so attractive, right. Now, we still -- we sell those two-tier solutions and one-tier solutions, right, with some of the smaller data and kind of also by EXs and maybe a range EXs and QFX [indiscernible]. And so we're happy to do that as well, the virtual traffic capabilities we have on the EX still play very well there for the smaller subsites. But really, when you went to this level of automation, the fact that a few of these things in the system becomes very important, in addition to the things that we've talked to you guys about a lot of times. Like latency and scale, and then -- they're still important even though they don't appear on the slide.

Robert L. Muglia

And -- yes, and...

Stefan Dyckerhoff

Well, it doesn't make them unimportant, right? Because the...

Robert L. Muglia

And of course, when we do connect those data centers to the network through the MX and can also secure data centers with the SRX. So providing a whole set of networking solutions -- networking products to solve our customer data center products. But then putting that together to Stefan's point is really the idea that in this cloud environment, what you have is the cloud orchestration system sitting above everything. And we're working with basically all of the major vendors out there to providing power orchestration systems and we're working with all of the high providers. There's a high -- there's correlation tier between this. So VMware, they love their ESX hypervisor, Microsoft loves hyper-V. Citrix is a little bit more agnostic, they don't want cross multiple hypervisors but they sort of prefer Xen. And then, of course, there's some emerging set of ways of managing the network all over the globe, which is also a way to pull up any kind of cloud orchestration into an underlying network environment. So what we're doing, and this is the thing that my team is cooperating very close to Stefan's team on, is we're building on top of QFabric a network virtualization layer that essentially does 3 things in that network. It enables the automation of the network. It enables protection and securing of the network, and it allows the network to have CT isolated. Because these applications, when they live in the cloud environment, they still need to be very isolated. You can see this very clearly in, say, a financial services organization, where the financial application and the HR application need to run in virtually independent networks even though they might physically broaden the same cloud infrastructure. So the network has to provide that low level of services. And really, it pauses -- there's a way of thinking about network virtualization, those ideas of automating, protecting and isolating. And one of the attributes about network virtualization that's interesting is an interesting topic people talk about but running it on a flat network that provides consistent low latencies what you really need to make this work. Because fundamentally, the system begins to move resources around dynamically. And in one sense, it has very low latency and all of the suddenly the resource moves and in some other distant part of the network and now it's got to go through multiple tiers and the latency has changed. The characteristics of the app can change. And so this combination of QFabric, together with this virtualization layer, really provides a unique environment.

Stefan Dyckerhoff

Yes, that's exactly right. I think the assumption here is obviously not this virtualization but the fact that every app uses multiple VMs, multiple servers in the data center, right? And you don't want to overburden the orchestration with knowing how many L2, L3 hops I'm away from the next server. So if you...

Robert L. Muglia

They don't know. They're not going to know.

Stefan Dyckerhoff

Right. And so I think this is one of the key things that we talk to our customers about in terms of combining QFabric with some of the assets that Bob is [indiscernible].

Robert L. Muglia

And if we -- we've spent time with all 3 of these vendors, we spent a lot of time and know them all very well. And when you talk on how the way they're think about the network, they all have slightly different approaches in the way they think about it. And they certainly have different API sets that they're using to enable this programmability. But we're working with them both to enhance the way they think about working with the network. But then also providing this world-class orchestration capability that connects the answer to what they're doing.

Stefan Dyckerhoff

Yes, great. So that's the data center.

Robert L. Muglia

One more thing which is just built on top of products, that you might be familiar with, Junos Space as well as our virtual gateway product. Those are 2 of the 4 products that -- as well as perhaps things like the SRX, the MX that are also controlled and those are areas that we're building around virtualization.

Stefan Dyckerhoff

Yes, very good.

Robert L. Muglia

Great. [indiscernible]

Stefan Dyckerhoff

All right. So the next couple of domains are enterprise-only starting with the wide area network. And so clearly, for a bigger enterprise, the wide area network is where they connect their branches, their campuses and their data centers together. And one of the things that we've seen, particularly with the move to private cloud, is that when actually becomes a more critical asset to the biggest enterprise in the world, right? Not for small or even medium-sized enterprise but certainly to the biggest enterprise in the world when you think about financials, public sectors and a few of the other big distributor enterprises. The TAM in this is substantial. It's about $3 billion. It includes the kind of core routing as well as some of the TDs that connect into this wide area network. So what's happening here is, one, enterprising, a lot more data, right? A lot more data and video in the enterprise is certainly growing as well, the occasion with your training and so forth, as well as if you build that private cloud and you think it's business-critical, you want to have an SLA to your own cloud. You really want to understand what the user of that business in Office X [ph]. How reliably the and what bandwidth can they connect to that data center. Clearly, enterprise are getting more distributed. They also have a lot more users on their network, both employees, as well as partners and others. So there's overall growth. At the same time, you have to consolidate. I mean, some of the bigger enterprise are running dedicated networks, sometimes layer one connections, to various sites and that doesn't give them the kind of flexibility that they need. So the theme of consolidating different parts of the wide area network and then segmenting it to guarantee quality of experience both separation on departmental basis and...

Robert L. Muglia

I sense the team here. It seems like these guys are facing the same problems as SPs faces. Access in agg and core, right? [indiscernible]

Stefan Dyckerhoff

Yes, absolutely. And it started with the very big financial that really look at their WAN and started to run very big networks for the things that they absolutely care about. And so as an example of what is happening here, it's a slightly-difficult-to-read slide but it kind of shows this is adapted from a couple of real-life examples of customers where they had a network that they ran for the WAN, so their own little core network. They have different SPs that provided some of the connections, which is not our problem and they rented layer one fiber to get to the key data centers and do data at the back-up and so forth, right? And that gives them very little flexibility and also strains a significant amount of bandwidth. If you're a very large enterprise, those LAN that divide those office connections are tentative connections. They're not cheap, right? and you have to have redundancy, you have to have manageability and so forth. And so our approach to this part of the market is really to make MPLS reusable for the enterprise, right? To give them a simple solution to consolidate the assets and segments using MPLS. You can then provide dynamic quality of service across that MPLS core. You can dedicate different paths and different parts of your core for different applications. You can do that dynamically, when you have a big all-hands or a big video broadcast or what have you. These are starting to become real problems. And I think MPLS both has mature enough and the management tools around it are now simple enough that we'll see more adoption. We've already seen this frankly more in Europe and a few other places. I think it's coming to the U.S. And then it hasn't really started over the last year. This moved this market further into our sweet spot, right? We understand how to do this, not just from a speed-to-feed features point of view but we've worked a lot on making MPLS usable for both SPs and enterprise. Of course, the benefit of the customer is they'll get a more dynamic network, with real-time SLA's and they'll save a bunch of money, right, as they do that. So that's essentially how they absorb these kinds of investments, by saving other parts of the network.

All right, so the other enterprise domain is campus and branch. A very large TAM, of which we've just scratched the surface. Includes obviously the switching assets, the security assets, the wireless LAN assets and so forth. So $18 billion. And the key trends here are really all driven by the new devices that are entering the enterprise. And it's very much like other parts in really the cloud. This really changes fundamentally the architecture of how campuses and branches are built. It starts with security, right? So when you have these devices that are both private and company assets, and you could go back and forth connecting to different places, your security perimeter has dissolved, fairly well accepted. So there's no -- and we like to say, there's no more moat. The moat doesn't work. This is also driven by partners that come into the enterprises, which is also an increasing trend. So we're there. Bring-your-own-device is really the final push that says, "The security perimeters is gone, you now need to redefine how you think about security for the enterprise."

The other key thing that's happening is wireless becoming the default. The default to access. It's not that companies are ripping out wired infrastructure or even for us when we built the new building, we were discussing it and we still put wires on the walls. Because it was cheap to do when you build the building. But wireless is the default access for all the users. And clearly, the more of the iPads and the iPhones, and so forth coming to the enterprise, the more that will be the case. The more quality of the experience the wireless network becomes a productivity tool for enterprise. And then last but not least, the other consequence of that is the resiliency as a performance, both of them matter for the wireless network. And that's really pretty much. That's a bit of a shift. It was really sort of get some coverage and do not worry too much about the availability and performance. These become more -- they become bigger [indiscernible] also as customers spending a significant chunk of money on wireless upgrades.

So we think about the -- this is obviously a big topic, right? If you say, you're changing the security architecture, or you're shifting to wireless, right, there's a number of things that we have to do. And really, I think at the of last year, we're now in a place where we're putting together an attractive overall solution of what we call, Simply Connected. And it started with really looking at our switching portfolio to make sure that is actually capable and optimized for campus deployments. Included shipping a new EX switch or a wiring possit [ph], really getting the virtual chapping capabilities tuned implemented on a few lower end EXs so that we can also reduce the number of devices and really drive down the cost. Clearly customers don't want to spend that much anymore on their wires because everything is wireless with people. And also, there's -- so just a huge upgrade type of happening in the industry where a lot of the bugs that were deployed over the last years are just getting to their sort of natural end-of-life. And they have the decisions to make about how they want to go forward. On the wireless side, we're very focused on integrating the [indiscernible] assets with the -- we now have ways to move as we go across the various products. We've trained our sales force to, "Look, wireless is the big care about, lean with that and then we have a great architecture features that goes along with that you can then implement." Certainly, as people care about performance, and in particular, high availability, in say, for example, healthcare settings and others where the wireless is really critical. That's a core technical strength of these assets and our product line. And then we made a few key investments that are shipping at the end of the year in terms of newer access points and so forth, which was something that we want to work with. This is also a domain where software and security play a key role. So why don't you talk about that, Bob?

Robert L. Muglia

Yes, I mean, software is a very key thing here both in the sense that software will connect into these next generation systems, particularly if people start doing videoconferencing more and network control is such a key thing. So that's a very important connection into the wireless, as well as the wired infrastructure. And security is very critical here because, as Stefan said, there no longer is a moat. And there's a need to have a very different kind of protection, how to -- thinking about protecting the application, protecting the end-user, protecting the overall network. And so we've significant investments in that overall infrastructure and I'll talk a little more about that in security space. One of the areas here that's important is obviously as people will grow fully, more application scale is a very important thing and we have what is pretty well university-recognized as the most scalable platform with what we have today with the SRX. At the same time, I will say, that there are a set of services and capabilities that matter in the enterprise space, particularly the manageability associated with enterprise as well as the application side. Well, frankly, we fall a little bit behind. And that's hurt us a bit. And so a very significant investment we've made is improving the manageability of our security platform, particularly around the SRX. And you'll see that rolling out in the second half of this year. We have a next generation management platform that brings together user and management and application management in a very, very easy-to-use way. It's called security design and it’s also on the Junos Space platform. And the initial feedback we've got from customers has been very positive. We've shown this to a number of customers. In fact, we're about to this out on a broader portfolio tour to our customers to show them what we've got here and we feel very, very good about what we're doing to make this bit -- the SRX extremely competitive in this space. But, honestly, we fell a little bit behind there. At the same time, one of the business that I think is necessary is to really focus on connecting the user, as well as connecting the devices. And that really brings us to the next domain, which is really the consumer and business device, which is that explosion of different devices from different vendors that exists, different operating systems. They have -- and transformed and really changed the way business works and people communicate with each other. And this is a situation where when I talk to IT managers, they're really kind of scared about what's happening. The last time they saw something like this was in the 1980s when the PC came in. And if you go back, if you can go back to almost 30 years now, they lived in their happy 3270 world back then, where IT controlled everything. And all of a sudden, some sophisticated end-user started buying these PCs and they started working with business data in a way that they've never seen before and IT got scared because they thought they've lost control. They got -- because they thought they thought lost control, they got particularly scared when these things started talking with each other in those LANs. Well, it didn't long for IT to just to flip that around and focus on really gaining control of those end-user devices and generally speaking, most businesses, most enterprise provision the device for end-users and they lock it down and secure it. And over the ensuing 20 years or so, we got to talk or to place to allow IT to effectively manage the devices. Well, it's the Wild West again. And it's worst than it ever was before. Because now, not only are the users bringing their own devices in, but they really think of them as their device. And they've got personal data on it, they got their pictures, they got their family information. There's all these stuff on their device and the devices right now are not very good at separating business-critical information from personal information. So managing these devices, enabling access to these devices is a considerable problem that is very, very high in the list of virtually every CIO. And so what we focused on doing with Junos Pulse is providing one comprehensive environment, comprehensive solution that addresses the concern that IT managers have with these -- all of these proliferations of devices. So enabling those devices to be connected to the business network, ensuring that they're protected and that, in fact, there are not viruses running on those devices and that IT can go ahead and manage it. And we've worked with Junos Pulse to support really all of the devices that end-users have. So certainly full family of iOS devices, virtually every Android device on the planet, which is really hard because there are a lot of them and they are very different from each other. Obviously, the Macintosh and Windows. And then as Windows 8 comes out and Windows Phone, and those things working with Microsoft as well. Making sure that we connect those things into the corporate network and do so securely, building world-class, anti-malware support on those devices because their -- remember, these little handheld devices are more powerful than the PC that you have on your desktop 5 years ago. So they're very ripe for malware intrusions and malware threats to be introduced. And then very, very importantly, enabling IT to manage and control those devices and control the key characteristics they care about. We rolled all of that into Junos Pulse. So it's a good offer because of all that.

Stefan Dyckerhoff

Absolutely.

Robert L. Muglia

Okay. So now, let's talk a little bit about some of the horizontals, the things that sit underneath these 7 domains. And the first one was Junos.

Stefan Dyckerhoff

Yes. So our one Junos strategy is obviously nothing new but as we thought it was worth -- with the amount of qualities we've put on creating service on the platforms, what we're just sort of talking to, what are the key things that we're after? What are the attributes both for us and for our customers and partners? For us, it's about engineering leverage, right? We can solve our problems, one, we can reuse components. It doesn't mean we have to reuse every line of code for every application, right? There are -- we do tune them for different platforms where necessary for costs, for size, for scale. But all of the key things, how you can figure them, how you do routing, all of those things are certainly shared and it really helps us sort of monetize the company to leverage and accelerate our R&D. For the customers, and particularly now that we have a broader product portfolio, the biggest advantage over the last years, where they developed different types of products, the total cost ownership, and we just recently sort of did the study again from a -- the total cost of ownership is really compelling. And it starts with lower complexity in the network, more consistent behavior and fast qualified different devices as they put them into the network, right? So certainly, for our customers, we do track, who has more than one product category and that becomes very important once they have 2 or 3 of our product categories that we offer. That then allows our sales folks to more easily sell the portfolio, right? So we don't just have the domain architectures where we can look at the overall business value proposition and architecture. But we can then tackle different parts of domain or go from one domain to another more easily by cross-selling these types of Junos devices, where there's a lot of share codes and then just a share away bigger and build it. And so that certainly helps there as well. And then last but not least, for our partners, if you want to pursue a strategy of openness and programmability, you must have an operating system. If you don't have an operating system, then what will your programs do, right? And so whether that the similar things we share around the data center, or whether that is the edge, where we have partners, certainly it's very important for that and while we don't expect thousands and thousands of app developers to start wanting to write apps on a router or a switch, it's certainly something that has really helped us to build other which sort of [indiscernible]

Robert L. Muglia

On already built an app store?

Stefan Dyckerhoff

Well, maybe a small one. A mom-and-pop [ph] app store. So we showed in the MX slide, but now that we have this vision that we're realizing the vision of Universal Edge, and you look at the number of service that are actually shipping, right, that's why we started with the strategy in the first place.

Robert L. Muglia

Yes, well, I mean, the -- MX is the foster child for what Junos can deliver. And it's that same kind of leverage that we're focusing across the SRX, we're focusing across our switching platforms, really everything we do.

Stefan Dyckerhoff

Absolutely.

Robert L. Muglia

That's correct. So the security -- we think of security as being part of each one of these domains. We haven't listed the TAM individually for security here. There's certainly no TAM for Junos but security to think of it as an independent, what we did instead was incorporate to TAM, put a security part into each one of these domains. And really our strategy here really is to focus on the challenges our customers face. The challenges that they have malware coming in on the devices, they have intruders focusing on getting into the network. And then in particular, and of a significant concern, is focusing on the business applications and people have in their environment and hackers that are really targeting business customers, enterprises, to really get at their business-critical data, either for financial gain or potentially to do them harm. So we've seen these attacks coming from everywhere. And simply put, our security strategy is really to focus on protecting each of these things, with our complete portfolio of product to focus on protecting the device with Junos Pulse, with what we do with UAP and still at VPN, across our SRX products and our UAP product to be able to protect the network and then protecting the applications. And in here, you may have noticed about a week ago we did an announcement just ahead of Mobile World Congress and RS data to try and stay out of the noise of this week. We made an announcement last week that we acquired a small company on the San Francisco called, [indiscernible]. And what [indiscernible] does is very leading edge. It speaks very much for the leading-edge security solutions that we're focused on providing. People have this challenge. Our business customers have their challenge that there are targeted attacks at their applications. And the traditional way is to just try and detect those attacks and see what's was going on. What [indiscernible] has done is something very, very different. And it's a very exciting capability. It's called Intrusion Deception. And what we've done is -- what they've done, and we'll incorporate it to our products, what they've done is they effectively, they connect into the application and when the intruder company comes in, they detect if an intruder is doing something. And when the intruder is asking for something that they want, say they want a list of users, what [indiscernible] does is it gives them a list of users. None of the information is real. But what it does, it deceives the attacker into thinking that they're actually working with real information and at the same time, it's monitoring all of this. So that the enterprise is able to understand what the attacker is doing, track their behavior. The attacker wastes a bunch of time. Instead of spending time focusing on getting the real information from the real applications, the attacker is deceived and focuses in on this falsified data. And at the same time, the enterprise can get a handle on this and stop the attacker on their tracks. And so when we think about these all up, our focus is to enable a very, very broad security platform that once again focuses on the device, the user and the network and the applications that's comprehensive across everything. And the security, our efforts on security are something, as I said, that we're building in a way which is focused on the domain. So it's different in today's center than it is in campus and branch, than it is in the devices. So it's very focused on the specific business challenges that customers face.

So that's Juniper in a nutshell. That's pretty much everything that Stefan and I are doing here. As you can see, we're taking this from very much a customer-focused perspective, thinking about the business challenges that customers face. We're a networking company. We build high-performance networking. And that's the way Kevin started. We then advanced our focus. We're singularly focused on delivering the best solutions in the marketplace. And what we've done here is pivoted this and focused on meeting the need that customers have. And by taking that approach, it really is now -- our entire -- everything that we do, our sales organization, our marketing organization, our support organization and, of course, our R&D organization connected together with our partners to really solve the customer problems and we can think that's a lot of opportunities for us and we think there's a lot of opportunities to help our customers with what they do. With that, I guess we'll open it up for questions. Yes?

Question-and-Answer Session

Unknown Analyst

Stefan and Bob. I was wondering if you could help us tie that back to areas, in particular strength and opportunity for Juniper? And then areas where you feel like you're particularly weak, where you can -- users have the opportunity to strengthen some of the context of the issues that we ask you about most of the time. That'll be helpful. Just come out of them as well as you can in your point of view.

Stefan Dyckerhoff

Yes, [indiscernible] I'll start and you chime in. So if you look at the 7 domains, I mean, there's some that we're either very new to or fairly new to. So access and allegations, we've got exactly, 0 foot print, right? So -- and I would say in campus and branch, we're all -- we're just starting. We really completed the product portfolio at the end of last year to really integrate wireless, to get the right switches out in the market and so forth. On Edge, we've been very strong. We feel that, that strength will continue and really excited about helping customers build that service creation point. I think that's going to be the next key focus. Clearly we also have -- and [indiscernible] are coming with 100 gig and some upgrade to the switch fabric and so forth. That part of the business is there. On core, we had announced 2011 what we wanted, mainly driven by the upgrade cycles, on the T Series, right, and the PCX obviously is shipping this quarter. So we don't see us losing any installed base and that's really key to the T Series, right? The game here is upgrading the installed base and then as we expand the reach of the sales force, getting new customers and the new logos that Kevin talked about. So as we finish qualifying the T4K and then, of course, as we insert the PTX, we feel very excited about -- and we certainly feel good about the position over the next couple of years. And the WAN, I mean, as you look at our enterprise numbers, so WAN has been a very good driver for our enterprise numbers. So enterprise customers do care about routers now and they like MX. And certainly expansion of the product portfolio into a lower end as helped in that way, I think.

Robert L. Muglia

We're early in that one. We're early. I think that's one where the single architecture is very positive but we're early.

Stefan Dyckerhoff

So why don't I let you take the other 2? Or together?

Robert L. Muglia

Yes, I will. If you look at the edge in the software, we -- as Stefan pointed, we see tremendous opportunity on top of MX. We're seeing strong growth in our services delivered and gateway in particular. We've a lot of interest around mobile-next, really is a part of the overall MX service and that's the exact way to think about that. We also see good strength and we continue to do very well with service providers in security, in particular the capacity that we have, the leading -- the fact, that we have the leading product in terms of enabling high-capacity makes a very good fit for particularly wireless deployment in the carrier space. We've seen some weakness in the enterprise around our security products. I think I took that when I said that we're falling behind there in a few ways and it's an are we haven't really focused on. And we're doubling down on it. We feel very confident in our ability to really regain strength in that space. But that's been an area where we've had a few challenges. If you look at the devices space, Pulse is a good product and it's good growth potential. It's still very, very early in that market and overall, it's still relatively a small market compared to some others. I think in the data center, we talked a little bit about the data center. A lot of -- I think that's also just mostly a growth opportunity for us.

Stefan Dyckerhoff

Yes, I mean, we -- we regained market share again in any -- actually, James in the last quarter. So as we look at the key QFX business, we talked about one of the 100 customers have the QFX. We have QFXs in deployment, we have QFXs in bigger and fabric configurations that are being trialed for deployment later in the year. So a range of different stages that we're at. It's important to remember that we want to grow both EX and the QFX business, but as we said in the conference call, with one of the 100 customers, we're happy with the initial insertion and clearly that has to be a big growth driver for us, right?

Mark Sue - RBC Capital Markets, LLC, Research Division

It's Mark Sue, RBC. Can you tell us how as organization you determine and prioritize resources across the 7 domains, and also, as you target market share gain, how you can ensure that you'll protect your existing markets and tactically how you can recover margins over the longer term as you get leverage across the 7 domains? And lastly, once you have these new products and you're ready to go, how can you ensure that it's not a company that's waiting for the service providers so you'll have very good technology but you still have to wait for them to deploy?

Stefan Dyckerhoff

Yes, clearly, a, we think they have good offerings in each of the domains. When we look at prior stage between the domains. When we look at the prioritization between the domains and plumbing through marketing and sales, right, you've talked of -- I haven't heard us talk about ACX -- about Edge, about data center, about core, where starting an [indiscernible], right, and so we've made the R&D investments now, other investments to follow. And as we grow enterprise focused with WAN, and campus and branch, they will certainly show traction and as they show traction, we'll invest more, right? So we do take from this sort of where is the biggest opportunity and where do we have a great position to accelerate? That's certainly in LAN. We did [indiscernible] very tightly and really started doing reviews that we make sure we don't mix pieces, right? So I have all the system's assets but I'm missing the software assets. So that's been a new motion that we sort of instituted in the organization after we've done the prioritization together.

Robert L. Muglia

Yes, I mean, I think the view that we give you with the TAMs that shows your preferred domains, it shows your one level of the opportunity. I mean, another big factor we put in there is -- from an investment perspective, is do we have clarity of how we're differentiating ourselves? Because if it's a large opportunity, but we're -- but the product that we would build is not differentiated from our competitors, that may not be the place that we would want to make our investments. So certainly see that in some space. I mean, it's the reason we're not doing radio network anapolis [ph]. It's why that's not an area of focus for us inside the edge space. And as we focus in on areas where Juniper can add unique differentiation and then Stefan's team and my team work together incredibly closely to actually build the products that fit together to solve the customer problems. And then depending on the area we -- right now, Jerry's team and the sales force and we're focusing on and Kevin has talked about how we're expanding the go-to-market resources. And we put focus, chief focus on that base. Obviously in the geography and the opportunity that might exist in a given geo. But then also in the area of specialties associated with each of these different areas. And depending on where we are on our product cycle is where we feel we make certain investments in our sales force [ph]. As an example we're just produced this ACX and aggregation product in the ACX, now is the time to get out sales force ramped up for that.

Stefan Dyckerhoff

Yes, and so to your last question was around how you get these technologies adopted. So there's really 2 notions. One is you have to have the architectural conversation with the customer, right? Until you start very early on the architectural transition. And that's really relatively new for the company and one of the reasons why we've been a lot more vocal about where we're going, why we're going there and that's certainly also replicated internally. And then the other part of that is either the new technology where our organization as a whole, particularly in the go-to-market, doesn't broadly have the scale to sell that technology, wireless LAN or others. Then we have a special sales force to help facilitate that conversation.

Robert L. Muglia

Yes. And the only other thing I would add is we're also working with our partner channel on that. That's a very, very significant part of our go-to-market. And that's true, very much true in the service provider space, where we had that partner channel very well established for a number of years. It's also probably true and important in the enterprise. We just came off, I guess, the beginning of our sort of our travel craziness. We just -- we came off in early January, our Global Partner Conference, and that was incredibly successful that -- where we had -- how many partners we had there with?

Stefan Dyckerhoff

That was 1,000.

Robert L. Muglia

1,000 partners. That was much, much larger than anything we'd ever done before. We had an incredible amount of interest in this. And we talked to our partners the same way we talked to you today.

Brian Marshall - ISI Group Inc., Research Division

Brian Marshall with ISI Group. A question on Q-tip. My understanding that it's getting some good traction out there but -- and the majority of those are actually shipping with the optics module but in the instances that are not shipping with the optics, can you clarify what that means from an architectural perspective, especially how it relates to your core [indiscernible] things?

Stefan Dyckerhoff

Yes, yes. So when we look at the -- what see happening, in what call the Converged Supercore we kind of outlined 2 phases that typically a customer will go. And the first one is really to build a switching layer of the Supercore. So in that case, the PTX will shift with what we call a gray interfaces. This is a regular -- a regular interface. And that's the vast majority. And then as we -- sometimes we then extend that architecture to have a common management and another integration with the optical layer, so the hardware part of that will really shift later. Because 100 gig coherent optics need to be in the right size and form factor to really become mainstream and we're not quite there yet and that's where some of our investment goes. So today, in management, we're building the switching layer in these customers. And then over the next couple of years, we'll suck [ph] in the optical transmission capability. As you build the switching layer, you can't already get rid of the [indiscernible] switches. So you don't need any of those OTN and solar switches and so forth.

Unknown Analyst

Just 2 questions. One is on the access product and then one is on the security space. So first, on access, which has traditionally been a lower-margin segment, if you can just expand on what you think you're margin structure is going to be there by comparison to the routing business? And then secondly, on security, you talked about one of the challenges on the enterprise side there, but then you also said that that's historically been the mold and the mold's broken and that's basically what a firewall has done, is kind of building up that moat. And what is arguably the challenge to be able to build it more structural? And can just be fixed with some features?

Stefan Dyckerhoff

Let me take the first one. There's 2 things that are important for [indiscernible] communications space, right? one of the reasons we didn't enter the space earlier, because there was no differentiation to add, right? Even as you replace a point-to-point TDM connection with a point-to-point Ethernet connection, it's just not that interesting. As customers adopt the unified access model, they'll get huge savings by collapsing multiple networks into one. And the savings of being able to provision services much -- opportunity of being able to provision service much faster. So we serve business for us learned a higher margin than those space traditionally. Now, what the exact margin is, I don't know yet. We'll -- but as a whole, we think the margin model that we put out there is not going to change from a mix point of view, right? And you want to tackle security?

Robert L. Muglia

Yes, sure. To Stefan's point about there is no moat, the real thing that he's saying there is that IT is dependent on the fact that users live inside a firewall enforced environment. The activity reinforces the security is a primary thing. They will continue to buy traditional firewalls but one or continued firewalls. That's not going to go away. The bigger thing is that IT is thinking much more comprehensively about the security challenges that they face and that's why we're taking the approach going forward, which is protecting the device and the user, enable to protecting the network and then protecting the application and thinking about that much more comprehensively. Ultimately, what that does, it provides a larger market opportunity for us. We've got to be successful in terms of building the best product in the space and connect all those things together. But I think it provides a lot of opportunities for us to grow.

Stefan Dyckerhoff

I think one way to say it is that the most important for applications, it's the users that are coming back.

Robert L. Muglia

Yes, that's right. And then we'll continue -- they'll to put the moat around the campus even though they can't depend on it as a primary way.

John Nunziati

So just in the interest of time, we'll take this one, one more then wrap up.

Robert L. Muglia

Okay. And we'll be around. So you know that right?

George C. Notter - Jefferies & Company, Inc., Research Division

George Notter, Jefferies. Can you make sure -- I wanted to make sure I understand how the revenue recognition cycle is going to work with the T4000 upgrade. I think people have been kind of poking you guys in terms of market share losses or perceived market share loss in the core routing space. Is it fair to say that just numerically the share losses look the way they do vis-à-vis Cisco because of the transition from the 1600 to 4000? Is there anything else that's playing in your mind? And then you can also address just the timing. When do we expect to get through this on the back end with T4000 finally flowing through forever like in a meaningful way?

Stefan Dyckerhoff

Yes, so let me take that one. When we look at market share, right? In the last couple of quarters, we lost market share. That's different than losing installed base and footprint, right? And we do not think we lost installed base and footprint, right? And the T4000 -- T1600 sold to a number of customers you can enumerate, so it is not so hard to figure out. So then, when we look at the upgrade cycle, the product will be GA as we said, general availability this quarter. So it'll be in a couple of weeks in March. And a typical qualification cycle for an upgrade like that is around 6 months. And the new system is around 12 months and this one at around 6 months. Average times, obviously we want to engage with customers but that's probably as specific as it gets.

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

Ittai from Oppenheimer. The I looked at your presentation. I want to just focus specifically on the data center. About 40% of enterprises in the future want to apply in architecture, not point solutions, they all like to buy something fully integrated for them, storage, networking, servers all in one. And you have a lot of great point solutions but you don't have a fully integrated architecture like that. You may have it is as a reference but not as fully delivered and integrated. How big of a problem is that? Do you think you'll address to fill these gaps in the future to address that market or how do you handle the problem of bigger and bigger piece of the market that just wants to buy in a way that you don't sell?

Stefan Dyckerhoff

Yes, so I'll start and you probably can chime in. So clearly for something like a QFabric today, that is what we call integrated. People that really have a lot of knowledge and don't fall in that category. So you have a valid. What about the rest, right? And here, I think key for us is our partners, starting with seasonal items like IBM and some of the other system integrators that we start to work with if the customer wants to buy that way. And that category will always be there. It's not necessarily where we're in. We get the fair point. I don't think it means for us that we need to add products. And the short term, we really need to make sure that the system integration offering of that complete solution is very good. Then as we look at the market, when the question that we're asking ourselves is okay, is that a shrinking percentage of the overall market, or a stable percentage or a growing percentage? And if I would answer that, that's probably a shrinking percentage of the market as we move to cloud. I mean, that's more workloads that'll be decentralized. But that can be seen, right? Anything you want to add.

Robert L. Muglia

Yes, absolutely. The way I think about it is we'll talk about infrastructure. Forget about the applications space in the data center for a minute because that's obviously a highly heterogeneous space with a lot of vendors. But let’s talk about the infrastructure and I think you've got to account at least 4 components in this and you could argue a fifth in a way. You've got your virtualization and cloud orchestration layer. The fifth we have, is probably the operating system choice, which is sort of coming down to a Windows or Linux. You've got the server hardware vendor and the network capability and the storage capability. And if you look, there are different leaders in each one of those markets today, right? I mean, you could say leaders are doing what piece of those markets are. You've got VMware as a leader in the power orchestration in the virtualization leader. You've got Microsoft leader with Windows server. Have a HP the leader in servers, Cisco obviously and absolutely in networking and [indiscernible] leads in storage. So it's hardly a single vertical stack that people are choosing from when it comes from a cloud environment. And in fact, it's actually impossible, virtually impossible to find one vendor that will fit. In fact, I would argue it is impossible to find one vendor that provides all of those things. So there will be some level of integration that has to happen no matter what. The most important thing for us and we're a networking vendor, no, we're not going to build servers. That's not a forever statement but as far as I can see and I suspect Kevin will probably say is there are no plans in the short run to build servers or go into storage or do something significantly different than that we're a pure play working vendor. Can we provide the best integration with our network to all of those? Yes, we can. We can provide the best integration with the hardware and we certainly can provide the best integration with the software, with -- particularly the operating system and the cloud orchestration system. And that's the way we...

Stefan Dyckerhoff

And maybe finally, we don't have a TAM problem, right? So I don't -- we need to make sure that we really address and gain market share in the subsegment of the TAM that we really care about. But there's plenty of TAM out there, right, and so the focus will be very important for us.

John Nunziati

All right. Thank you all for joining us. That concludes the webcast.

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Source: Juniper Networks, Inc. - Shareholder/Analyst Call
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