While this new operating plan isn’t being called restructuring, the Sunnyvale, Calif.-based vendor did except demands from hedge fund company Elliott Management to increase shareholder value and two board spots.
Company CEO Shaygan Kheradpir said he would lead the company through the changes required for Juniper, which include include improved cost structure, a capital allocation strategy that results in improved returns and new market direction to High-IQ Networks and the cloud.
The key in this new direction for Juniper is High-IQ Networks and Kheradpir said the company’s new strategic focus will be on high growth opportunities in networking as customers migrate to High-IQ Networks and the cloud.
He expects a return of 25 per cent operating margin for 2015 which will also be helped by operational efficiency. This will be approximately a 580 basis point improvement compared to 2013, he said.
The integrated operating plan will also have an aggressive capital return portion, returning a minimum of $3 billion of capital to shareholders over the next three years, including more than $2.0 billion in share repurchases through Q1 2015. Juniper will initiate a $0.10 per share quarterly dividend to commence in Q3 2014, with the intention to grow it over time.
Juniper has also undertaken a company review that they hope will provide a more focused R&D and go-to-market program.
“The cornerstone of our IOP is the belief that our customers, which include some of the world’s largest service providers, financial services companies and government agencies, are increasingly building hyper-scale, resilient, secure, highly intelligent, open and virtualized networks,” Kheradpir, said in a prepared statement.
“As a pure-play, high-performance networking company with engineering and organic innovation at its core, I believe Juniper is uniquely positioned to help these customers address their rapidly evolving networking needs. Our new, sharpened focus will bring us closer to our customers as we innovate together to address the opportunities ahead, and will enable us to operate much more efficiently as One-Juniper.”
The integrated operating plan includes four elements:
- A strategy that capitalizes upon Juniper’s engineering expertise across routing, switching, security, control and network management. This is aligned to being a provider of secure High-IQ Networks and serving the needs of Cloud Builders.
- An optimized One-Juniper structure: Juniper will create a more focused, connected, agile and execution-oriented company structure driven to deliver on its customers’ imperatives for High-IQ Networks and cloud environments. This will also result in streamlining its operations and business portfolio.
- Enhanced efficiency and improved cost management: Juniper’s refocused strategy and optimized One-Juniper company structure expects to exit the first quarter of 2015 with annualized operating expense savings of $160 million from the Q4 2013 level and achieve an operating margin of 25 per cent for 2015 – an approximate 580 basis point improvement from 2013 – with operating expenses of 39 per cent of revenue.
- To ensure that costs are removed in an accountable and efficient manner, Juniper established a Cost Control Committee led by Kheradpir and tasked with implementing efficiencies throughout the organization. Juniper has also retained McKinsey Technology Cost Structure Team who will work with the Cost Control Committee on the plan’s effective implementation.
- Aggressive new capital allocation plan: Juniper also today committed to return a minimum of $3 billion to shareholders over the next three years through a combination of share repurchases and dividends. As part of this plan, the board of directors has authorized $2 billion in share repurchases to be executed through the end of the first quarter of 2015, including $1.2 billion through an accelerated share repurchase program to be entered into shortly. Juniper will also initiate a quarterly cash dividend of $0.10 per share of common stock beginning in the third quarter of 2014, with the expectation to increase the dividend over time. The expanded capital allocation plan will be funded by a combination of onshore cash and newly issued debt to preserve Juniper’s financial flexibility to invest in future growth opportunities.
“The initiatives announced today are based on a comprehensive review of our business and customer needs, and we are confident that they will drive long-term, profitable growth by capturing greater share in the most meaningful market segments. In the near-term, we will align our cost structure around this new strategy and expect to deliver improved performance for our shareholders through operating margin expansion and a more aggressive capital return plan that preserves our ability to invest in innovation,” concluded Kheradpir.
Further, as part of its ongoing assessment of the composition of its board of directors, Juniper also announced today that the board will nominate for election at the 2014 Annual Meeting of Stockholders Kevin DeNuccio and Gary Daichendt as new independent directors. Daichendt previously served in several senior operating executive positions at Cisco, retiring from the Company in December 2000. He currently serves on the boards of NCR, Emulex and ShoreTel. DeNuccio has over 25 years of executive and public board experience, primarily in the networking industry. DeNuccio is the former president and CEO of Redback Networks.
In addition, having completed the transition with Kheradpir, Kevin Johnson will retire from the Juniper Board at the end of February 2014.