Kathleen Nemeth - VP Investor Relations Shaygan Kheradpir - Chief Executive Officer Robyn Denholm - Chief Financial and Operations Officer Rami Rahim - EVP Juniper Development and Innovation.

Tal Liani - Bank of America Merrill Lynch Ashwin Kesireddy - JP Morgan Simona Jankowski - Goldman Sachs Ehud Gelblum - Citigroup Jess Lubert - Wells Fargo Mark Sue - RBC Marketing Amitabh Passi - UBS.

Greetings, and welcome to the Juniper Networks Second Quarter 2014 Earnings Results Conference Call. At this time all participants are in a listen-only mode. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Ms. Kathleen Nemeth, Vice President Investor Relations. Please go ahead..

Thank you, operator. Good afternoon, and thank you everyone for joining us today. Here on the call are Shaygan Kheradpir, Chief Executive Officer; and Robyn Denholm, Chief Financial and Operations Officer. Also with us is Rami Rahim, Executive Vice President, Juniper Development and Innovation, who will be available for the Q&A portion of the call.

Please remember when listening to today’s call that statements concerning Juniper’s business outlook, economic and market outlook, strategy, future financial operating results, and overall future prospects are forward-looking statements that involve a number of risks and uncertainties.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including economic conditions generally or within the networking industry, changes in overall technology spending and spending by communication service providers and major customers, the network capacity requirements of service providers, the timing of orders and shipments, manufacturing and supply chain constraints, variation in the mix of products sold, customer perception and acceptance of our products, rapid technological and market change, litigation, the potential impact of activities related to the execution of Juniper’s integrated operating plan, and other factors listed in our most recent 10-Q and 8-K filed with the SEC.

All statements made during this call are made only as of today. Juniper undertakes no obligation to update the information in this conference call in the event facts or circumstances change after the date of the call. For purposes of today's discussion, we will also review non-GAAP results.

For important commentary on why our management team considers non-GAAP information a useful view of the company's financial results, please consult the press release furnished with our 8-K filed with the SEC today. For the detailed reconciliation between GAAP and non-GAAP results, please see the Investor Relations section of our website.

Please note that today’s call is scheduled to last for one hour and please limit your questions to one per firm. With that, I'll turn the call over to Shaygan..

Thanks Kathleen, and welcome everyone. I am pleased to report that Juniper had another solid quarter, delivering on the upper end of our guidance. On a year-over-year basis, we grew revenue 7% and expanded our non-GAAP earnings per share by 38%.

Our revenue was well diversified across our target verticals including carriers, Web 2.0, cable and financial services and across all geographies. We're seeing good trends in U.S. federal aided by more stable market environment and government budgets normalizing after a protected period of constraint.

We delivered good performance across our routing and switching product lines, both of which grew year-over-year. I am particularly pleased with our routing performance which grew 7% year-over-year and if normalized for last year's deferred revenue recognition of $34 million, grew 14% year-over-year.

Our highlights include switching growth of 25% and continued customer transaction of Contrail SDN. While overall security was down Junos Space SRX products delivered good year-over-year growth of 9%. All-in-all, a very good performance for the June quarter.

Since the last earnings call, I have been on a whirlwind tour meeting with over 70 customers and partners. They are all enthusiastic about our strategy to be the leading provider of High-IQ networks and best in class cloud builder.

What’s really resonating is our approach of listening and understanding in a deep way to the particular business imperative and linking them to Juniper’s out of the possible innovation.

Parts of our renewed focus aligns our efforts across our go-to-market and R&D organizations by taking a deliberate used case driven approach to helping our customers deliver innovation that matters to their customers and operations.

While our strategy is clearly resonating with our customers, there are some specific, customer specific dynamics in the near-term that we are factoring into our outlook. Specifically, within U.S. based service providers, their market dynamics including M&A activity are impacting, both sequencing and timing of projects.

While this will impact our near-term outlook, we are well positioned with these customers with major design wins in key areas of their network including next generation projects. Despite the current near-term uncertainty, there are number of positives.

First, we expect continued strong growth in our Web 2.0, cable and federal customers; second, EMEA is showing positive momentum with customers continuing to build out their network capacity; third, we are seeing good performance out of our enterprise sector.

I am very confident that our market position is strengthening and our momentum in winning new business and new customer logos over the medium and the long-term is strong. Now I'd like to spend a few minutes discussing the four pillars of our Integrated Operating Plan.

We are maintaining a disciplined approach to our commitments and I'm pleased with our progress. First, we pivoted our strategy towards growth areas of the market centered on cloud building and High-IQ networking.

And we deliberately aligned our resources and partner ecosystem to customers in defined verticals that are in a build cycle for these growth areas. We are seeing clear signs of success as well as an increasingly diverse customer set. For example, three of our top five customers this quarter are either Web 2.0 or cable companies.

Second, we successfully implemented to organizational structure required to drive our strategy. By streamlining the company with a One-Juniper mindset, one go-to-market organization, one R&D organization and one aligned infrastructure organization.

We have focused our go-to-market and R&D resources on projects with highest potential for growth and we continue to drive leverage engineering across our routing, switching and security products, via Junos, Silicon end systems.

As part of this realignment, today we announced that sale of our Junos Pulse business which is our SSL VPN solution for securing remote network access.

We are making the pivot fully toward stated high growth strategy of Cloud-Builder and High-IQ networks for which security is essential and we are shifting our resources into security areas to commensurate with this strategy. In terms of how we work.

We are implementing initiatives to drive greater collaboration and co-creation across organizational boundaries as well as setting new standards of accountability. These changes will allow us to grow faster, work more efficiently and be more responsive to our customers business imperatives.

Third, we continue to drive structural efficiencies across the organization and have executed on specific cost management actions focused on four key areas, consolidation and reduplication, de-layering the organization, greater automation of business processes and focusing on innovation that matters most to our customers.

Our OpEx this quarter was $515 million, which is $24 million lower than Q4, 2013. Our baseline for the IOP. This represents an annualized savings of approximately $100 million, nearly two-third towards our goal of $160 million in annual savings. The $24 million of in-quarter savings are primarily headcount related costs and structural in nature.

Approximately three-quarters of our headcount savings comes from de-layering and reduplicating management positions. We also reduced approximately 10% of our facility footprint by implementing a new dynamic workplace model. In addition, we have made decisions that will give us line of sight to do remaining cost savings goal by Q1, 2015.

Our cost control committee under my leadership continues to drive implementation of efficiencies throughout the organization. All actions to-date are strengthening Juniper's muscle and smart efficiencies with mechanisms in place to ensure cost will not come back even after we reach our targeted savings goal.

Finally, we've greatly improved our allocation and management of capital. We continue to deliver very strong cash flows from our operations. This has been a consistent area of our strength for Juniper enabling us to invest in growing the business as well as generating returns for our shareholders.

The actions we’re taking include the initiation of the quarterly cash dividend this quarter and then aggressive return of $3 billion to our shareholders as per our plan. In addition, we’ve successfully concluded our patent litigation and recorded a gain of $195 million.

We are committed to delivering our integrated operating plans and driving significant value for our shareholders. Now let me talk about the industry outlook. As the customization of demand for rapid innovation as mass scale, our customers willing to continue to invest in the network.

We are seeing our key verticals at the forefront of this wave of change making the transition to high-IQ networking and Cloud-Building and they’re all driving towards a common set of network architectures that are converging across verticals. Market fundamentals for Juniper’s routing products continues to be healthy and increasingly diversified.

Routing demand is being driven by consolidation of networks across business and residential services, wireline and wireless and the need for Cloud-Building.

Bandwidth demand continues to increase and favors our products speed and density advantage such as the industry’s first 0.5 Terabyte per second line card in our MX platform that we’ve just begun shipping. Demand for switching products also remain strong driven by four trends.

First next generation data center transformation projects, and the need for carrier grade availability and operational simplicity. Second, hyperscale cloud build outs. Third proliferation of big data and video requiring very high performance networking and 10 Gigabit Ethernet refresh.

And fourth, increasing need for open architectures and end-to-end automation. These trends favor our products. For example, our customers have been using our QFX5100 line as a fundamental building blocks for carrier class layer 2 and 3 switching as well as the foundation for automation capabilities such as seamless workloads movements.

In addition, many of our customers are going into production with Contrail as they look to automate and orchestrate the creation of highly scalable virtual networks. In Q2, we have had two large public clouds go live with Contrail, one in APAC and the other CloudWatt, the largest cloud in France.

We've helped launch private cloud as well including one with a global leader in enterprise security.

In security, the decline of our legacy NetScreen product has accelerated and while we disappointed with overall growth rate, we are pleased that our Junos Space SRX portfolio was up 11% in the first half of the year, the growth was driven by demands for high performance Firewalls, virtualized Firewalls, high IQ features for stress detection and mitigation and end to end management simplicity.

As I've noted before, SRX based security offerings are a differentiated and critical element of our strategy of Cloud-Building and delivering high IQ networks. Let me walk you through why.

One, our Cloud-Building customers are increasingly aware that integrating carrier class security is an imperative and therefore are choosing our security ramping and switching products as an on-sample for the cloud and virtualized data centers.

Two, as our customers make the transition to LTE and NFV, security has become a crucial component of their overall solution. And example is security based services that work seamlessly with our MX and Contrail products.

And finally there is a significant level of technology sharing between our Junos-based SRX security routing and switching across silicon systems and software that enables a very high leverage R&D strategy.

We are executing on this strategy focusing our security investments on projects with the highest ROI, while improving the overall profitability of our company. As the only high performance, pure play IP networking company, we are uniquely positioned to build the bridge of the future for our customers.

We are playing a critical role in helping them be more relevant as they look to create new business models, increase productivity and optimize for rapid deployment of new services. I see great opportunity across our customer base and I am confident that Juniper can help our customers change the world in creative new ways.

In summary while there are some specific customer dynamics that we are carefully navigating in the near-term I am confident in our opportunities and growth prospects in the medium and long-term. I would like to thank our employees for the commitments and relentless focus on our customers and execution.

Now I will turn it over to Robyn to provide more details on our financial results..

Thank you Shaygan and good afternoon everyone I am pleased to report that our Q2 ‘14 results reflect healthy revenue growth and continued strong earnings expansion. Revenue increased 7% year-over-year with growth in all three geographies, driven by good performance in our routing, switching and SRX security products.

Non-GAAP earnings per share grew 38% year-over-year, marking the sixth consecutive quarter of strong double-digit earnings growth. Before I go into detail on the quarter's results, I’d like to provide an update on our Integrated Operating Plan.

One of the important elements of our cost reduction activities is that we have been very mindful of how we allocate and shift resources to ensure that we continue to invest in areas that will drive the future growth of the company.

In the quarter, we consolidated our Sunnyvale campus, discontinued several R&D projects which had a lower return on investment and lastly, completed our headcount restructuring.

As a result of these actions in the quarter, we recorded restructuring and other charges of $72 million, approximately $10 million with the headcount actions taken during the first half of the year, the remaining $62 million was related to asset write-downs including $44 million for facility consolidation, $14 million for inventory and $4 million for R&D project cancellations and asset impairments.

This brings total restructuring charges to-date to $194 million versus our original total estimate of $220 million. We are pleased with the pace with which we are taking out structural cost out of the business and anticipate our future restructuring charges to be in the order of $5 million to $10 million.

I'm also pleased with the execution of our capital return plan. As I mentioned during our call last quarter, we initiated a $1.2 billion ASR of which $900 million of shares were delivered in Q1. We expect the remaining shares to be delivered no later than the end of August.

Given our strong cash generation, we intend to opportunistically repurchase a minimum of $550 million in addition to the ASR by the end of the year. This means that before year-end we'll complete at least $1.75 billion against our commitment to repurchase $2 billion by the end of Q1 2015.

I am also pleased to announce the initiation of a quarterly cash dividend of $0.10 per share of common stock. This puts in place another piece of our commitment to returning $3 billion to our shareholders over the next three years. As we have said before, we expect to grow this dividend over time.

These capital initiatives reflect our confidence in the underlying long-term strength of Juniper's business as well as our commitment to enhancing shareholder value. We have carefully structured the program to ensure flexibility to support innovation and growth initiatives.

And as you would expect, we will provide update on our progress against these initiatives each quarter. Now, I would like to move into a discussion of the Q2 results. Looking at our demand metrics, our book-to-bill was approximately 1. Total product deferred revenue was up sequentially $20 million and down $26 million year-over-year.

The sequential increase was due to an increase in channel related inventory. Total revenue for the quarter was $1,230 million, up 7% year-over-year and 5% sequentially. Product revenue was up 8% year-over-year and 6% over last quarter. As you may recall, in Q2 of 2013, we recognized $34 million of previously deferred routing revenue from a U.S.

government customer. If you exclude the revenue recognition from last year’s results, total revenue growth this quarter would have been 10% and product revenue growth would have been 12%. This revenue recognition also impacted the year-over-year growth grades through enterprise and routing.

Services revenue was $300 million, up 5% year-over-year and 2% sequentially. There were no 10% customers this quarter. For the quarter, GAAP diluted earnings per share were $0.46, an increase of $0.27 year-over-year.

This included a net gain of $195 million related to a patent litigation settlement, which resulted in a $0.41 positive impact to earnings. This was offset by restructuring and other charges of $72 million which resulted in a $0.15 negative impact.

In the quarter we also incurred a charge of $0.03 associated with an industry wide memory product quality related item. Non-GAAP diluted earnings per share were $0.40, up $0.11 year-over-year and over last quarter. This represents a 38% increase, both sequentially and year-over-year.

The sequential increase was due to a substantial improvement in operating margin fueled by higher revenue, improved gross margins and the decrease in operating expenses. We had a positive impact from reduced share count of approximately $0.02 year-over-year.

Before I go into detail on revenue, I’d like to highlight some of the trends that we saw this quarter. We continue to see healthy drivers of long-term demand and design wins with customers across the world. In the U.S., we saw continued momentum in demand with Web 2.0, cable and enterprise customers.

This diversity of demand is a key strength for us going forward. However life in the quarter, we saw some delays in the timing of project with the few key U.S. service providers. Based on current visibility, we expect these delays to impact second half results.

Outside of the Americas, we saw continued strength in EMEA carrier spending coupled with several good build in select markets in APAC. Now let's look at the results in detail. All written experience sequential revenue growth Americas revenue was up 5% year-over-year and 4% sequentially.

Americas service provider was up 13% year-over-year and 3% sequentially driven primarily by Web 2.0 customers, a reflection of the continued diversity of our revenue. Americas enterprise decreased 9% year-over-year.

However taking into account the previously mentioned government deferred revenue recognition from last year the growth rate would have been 6%. Sequentially Americas enterprise increased 6% led by strength in the U.S. federal market.

EMEA revenue was up 8% over last year and 10% sequentially due to healthy growth in the service provider market with particular strength among large carriers in Central and Eastern Europe and the Middle East.

APAC was flat sequentially, an increase $0.11 year-over-year primarily driven by strength with regional carriers across the theatre as well as growth in the enterprise market. Service provider revenue for the quarter was $832 million, up 15% year-over-year across all three geographies and up 6% sequentially driven by EMEA and the Americas.

Enterprise revenue was $398 million down 6% year-over-year excluding the government deferred revenue recognition from last year so year-over-year growth rate was 2%. Sequentially enterprise revenue was up 3% led by healthy U.S.

federal and financial services demand partially offset by routing products revenue with $618 million up 12% sequentially and 7% year-over-year; the sequential growth was driven by a strong performance for MX and significant improvement for (inaudible). Switching products revenue was a record $200 million up 25% year-over-year and up 4% sequentially.

The sequential growth rate was driven primarily by QFabric products. The year-over-year growth was driven by a combination of both QFX and EX products. Total security product revenue was $112 million down 17% sequentially and 11% year-over-year.

We are disappointed with this performance however it does reflect the trend that we have been seeing as steady increase in Junos-based security products and a significant drop in the non-Junos-based security products. Our SRX platform and security software were up 9% year-over-year and up 11% for the first half of the year.

We have included a table in our slide deck breaking out the security product revenue. Moving on to the gross margin and operating expenses. Non-GAAP gross margin for the quarter was 64.2% compared to 63.5% last quarter and 63.7% a year ago. The sequential improvement was driven by an increase in both product and services gross margin.

Non-GAAP product gross margins were 65.4%, up six-tenth of a point from last quarter and up 1.6 points from a year-ago. The sequential improvement was primarily driven by increased volume. Non-GAAP services gross margins were 60.5%, down 2.8 points from a year ago and up eight-tenth of a point sequentially.

The year-over-year decline is higher support cost. The sequential increase is due to higher revenue and flat support related cost. We expect services margins to continue to modestly improve in the second half of the year.

We are pleased to report that our non-GAAP operating expenses were $515 million at the lower end of the range that we gave last quarter, reflecting our focus in execution against our integrated operating plan. This represents the $27 million or 5% sequential reduction.

This includes a $6 million reduction in patent litigation related expenses versus the first quarter, due to the settlement. The remaining legal and litigation fees in Q2 were $12 million, consistent with Q1. We are on track to deliver against the $160 million of annualized cost reduction goal that we announced in February.

Our headcount ended the quarter at 9,083 which represents 5% decline sequentially and year-over-year. Non-GAAP operating margin for the quarter was 22.3% reflecting a year-over-year expansion of 3.4 points and a sequential increase of 5.1 points due to higher revenue, improved gross margins and lower operating expenses.

The non-GAAP tax rate was 26% compared to 25.6% last quarter. The GAAP tax rate was 24.9% compared to 25.3% in Q1. We ended the quarter with $2.6 billion of net cash and investments, an increase of approximately $480 million sequentially. This includes a $165 million related to the patent litigation settlement.

Onshore cash and investments represented approximately 37% of total growth cash balance. Q2 operating cash flows were unusually strong at $425 million. This included $75 million of cash received from the patent litigation settlement.

The strong cash flows during the quarter were also attributable to higher net income, lower incentive compensation payments and improved working capital metrics. Inline with recent trends, DSO improved to 41 days. CapEx was $41 million in the quarter and depreciation and amortization expense was $45 million. Now I will review our outlook for Q3.

As a reminder these metrics are provided on a non-GAAP basis, except for revenue and share account. As previously mentioned, there were some customer specific dynamics in the near term that we have factored in, into our outlook.

While we are well positioned with these customers, with our current visibility to we expect sequencing and timing related delays to effect both Q3 and Q4. This is partially offset by science and strength in emerging verticals such as Web 2.0 and cable as well as a positive outlook for enterprise.

We see positive momentum in EMEA with customers continuing to build out their network capacity. For the third quarter we expect revenues to range from $1,150 million to $1,200 million. Gross margins are expected to be 64%, plus or minus 0.5%.

Operating expenses are expected to be $505 million, plus or minus $5 million, which at the midpoint is a $10 million reduction from Q2, and a $5 million reduction from our previously published targets. We’re delivering on our cost reduction commitments. Operating margins are expected to be 21%, plus or minus 0.5%.

This is expected to result in non-GAAP diluted EPS of between $0.35 and $0.40 per share, assuming a share count of approximately $475 million. This continues our strong expansion of earnings with growth of 14% at the midpoint of the guided range. We expect a flat tax rate versus the second quarter.

As you know, we announced the sell of our Junos Pulse business today. The impact has been factored into this guidance and it’s immaterial to our revenue outlook for Q3. The revenue impact beyond Q3 can be guided from the supplemental table provided. We expect this sale to close late in Q3.

We have factored the cost-savings associated with this sale as part of our goal of achieving a $160 million in cost savings as we exit the first quarter of 2015. To conclude, I am really pleased with the performance of the entire Juniper team.

The first half of 2014 has been a time of solid execution for the company, we have lots of moving parts and we have continued our focus on the things that matter most to our customers and shareholders. I am very proud of our team and thanks them for their continued dedication and commitment to Juniper. Now, let's open the call for questions..

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Tal Liani with Bank of America Merrill Lynch. Please proceed with your question..

Hi, first just housekeeping item and then my question. Can you provide us the numbers for Pulse and also the all platform also for Q3 and Q4 of last year, then we'll have a complete picture of how security was trending? Second question and then that goes back to my main question.

When I look at your, and this is more kind of a statement than the question I would like to here maybe Shaygan might, I'd like to here your view. When I look at your plan, the expense side of the equation is almost done, you almost finished with the expense reduction.

And then I look at the numbers in switching is relatively flat for three quarters now, the growth is mainly because you have easy comps from last year.

In security, we are back to the levels, we are down back to the levels of March 13 you quoted the six months numbers, but if you actually look at Q2 numbers were down sequentially back to the levels of first quarter '13 and in routing there are delays.

So how long do you think if put the expenses aside, how long do you think is going to take us to see the changes you are implementing on the product portfolio and growth acceleration and impact on switching and routing and security et cetera? Thanks..

Hi Tal, this is Shaygan, good afternoon. On your first question on drilling into Pulse, I am going to ask Robyn to sort of go through the numbers and then we’ll take the second one..

Yeah so in the slide deck, that’s on our website we have provided the data for the last six quarters, so you can see the Junos Pulse revenues for the quarter Q2 of ‘14 we did product revenue of 15.9 million which is included in our security product revenue and we also did about $15.5 million worth of services.

And as I mentioned the transaction on the Pulse file I will conclude right in third quarter is what we are expecting and so we don’t expect any impact to the revenue in Q3, but you can use the table to model the impact to Q4.

Just going back to the other housekeeping question the ScreenOS product revenue for Q2 ‘14 was about $13.2 million which is less than 12% of our total product revenue that compares to previous quarter where it was under 14% at about 18.3%. So it’s dropping off quite significantly from the ScreenOS perspective..

Thanks Robyn and Tal on your second question, I would say that we continue to take share on both switching and routing. And as you mentioned before on security this year the stabilization phase, if you look at our numbers this quarter if you normalize for the one time from last year at this time on routing, routing was up 14%, switching was up 24%.

We are taking share and we continue to do significant enhancements at both product lines. For the balance of the year, we mentioned in our prepared remarks that we have a couple of U.S. service providers with whom we are very close at all levels and in continuous dialog.

Because of their market environment and what they need to do, they are risk sequencing and that's going to impact some of the timing of our programs as we were working with them. We are -- the growth drivers, our product positioning, we are very encouraged by both and overall for our 2015, we have an overall constructive view of where we are heading.

So overall, we feel good about our product positioning and our market positioning. And I think this quarter's growth and growth year-to-date for both routing, switching and I would also say even though in security we are tuning in now heavily to our SRX space, Junos space products, it has respectable growth of 9% year-over-year. So, we feel good.

Thank you very much..

Thank you..

Thank you. Our next question comes from the line of Rod Hall with JP Morgan. Please proceed with your question..

Yes, hi. This is Ashwin on behalf of Rod, thanks for taking my question. I want to understand a little bit about the customer specific dynamics you talk about. You said it's going to be weak in Q3 and Q4.

So are we sort of expecting a better seasonal Q1 and Q2 next year? Also if you could comment on which verticals you see impacting, that would be helpful..

Yes, your first question was about -- Ash was about the dynamics, the market dynamics of the couple of the service providers.

I don’t want to really go into that but I think you can see they’re very transparent in terms of where they are putting their capital, for what reason and there is some M&A that is in the market, we know that and I encourage you to think about M&A in the broader sense. And when you put it all together and I have lived in those markets in the U.S.

specifically for a quarter century, it makes everything comes together and some of our internal metrics also late in the quarter sort of flash. So we want to be prudent and we want to be cautious for the balance of the year.

But we're also because of the growth drivers that we talked about and where we are from a product perspective, we are overall constructive for 2015.

Robyn, do you want to add anything there?.

I think you've discussed it quite well, Shaygan..

Thanks Ash..

Thank you. (Operator Instructions). Our next question comes from the line of Simona Jankowski with Goldman Sachs. Please proceed with your question..

Hi, thank you. Can you clarify if Pulse was contributing positively to EPS for new account for the associated expenses? And then just remind us how much of your revenues go in to campus or access environments as opposed to the focus areas, Shaygan that you’ve talked about of datacenter and cloud..

Hi Simona, this is Shaygan. I will pass the question to Robyn. I will just say about Pulse, two second. Pulse is a good asset. The issue is it's not in line with our strategy which is very much focused on cloud build or High-IQ and how those markets are shaping.

And we want to really focus our security line around growth where the markets are going and very strong in. So with that I am going to pass to Robyn to take the question on Pulse..

Yes. As Shaygan mentioned, intent of doing strategic review with our portfolio, Pulse was an asset, a good asset but as Shaygan mentioned, not directly in the line with strategic focus of the company. And therefore we have announced the sale of the asset today.

It has been mildly accretive for us over the years in terms of the overall P&L but given the focus of the company and the intent to return on investment, we’ve decided that that’s an asset that with better in the hands of the another entity to look after it..

And Simona, on your second question I am going to ask Rami to comment and say few words..

Yes. On the question on campus versus -- sorry Simona, on the question about the campus versus data center aspects of our switching business. The majority of our switching business goes into data center and combination data center campus switching scenarios.

There are in fact large enterprise customers where the line between their mission critical campus and the data center is essentially blurring. They view the campus as an onramp to the data center.

We’re not going after the smaller wiring clauses types of campuses; we’re really going after the larger strategic high performance High-IQ type of campus networks that many of our customers are building..

Thank you. .

Thanks Simona..

Thank you. Our next question comes from the line of Ehud Gelblum with Citigroup. Please proceed with your question..

Hey guys, hey Robyn, hey Shaygan.

How are you?.

Hi Ehud..

Hi. A couple of quick questions. First of all, back to the SRX, it was strong in Q3, Q4, was very strong in Q1 and then fell fairly hard to about $80 million in Q2.

I want to get a sense if that’s seasonal or because Q2 last year also had a similar impact or was there large build that one on for those three quarters Q3, 4 and 1 or any other color that we can get on the dynamics over there. Then, I wanted to pick up a little bit on Contrail. You talked about continued traction in Contrail.

Can you give us a sense as to is that -- is Contrail actually selling the standalone product yet, is there some revenue we can be looking at that or is there pull through that we can be looking on possibly the QFX or other products? And now that Cisco is out with their ACI and their APIC, how are you seeing that change of dynamic in the conversations on Contrail? And then lastly, Web 2.0 and cable guys, Robyn you talk about these guys a lot now.

Can you give us a sense how large to Web 2.0 guys are? Are they 5% of your revenue now? Give us a sense as to what we should be looking from that vertical? Thank you..

Thanks Ehud. There is I think four or five questions there, so I'll punch them some quickly and I’ll have Robyn and Rami also chime in if they want. So on SRX, as we have pivoted to Junos Space SRX security line, obviously this is a cloud builder High-IQ service provider carrier grave kind of firewalls.

And the sales of that obviously is more lumpy than I would say your grandfather’s firewall in normal branches and stuff. So you will obviously see lumpiness in those sales just because of the nature of what we are selling which is very, very high end.

On Contrail we are very happy and encouraged with the progress is that we are very early in the game obviously and it’s all about design wins holistically for clouds be it private clouds or public clouds infrastructure as a service and so forth and so on.

So they started this just last year, late last year they have a large number of talks proof of concepts, they have pivoted now from talks making those go into production and the funnel keeps growing on talks.

And they are being very deliberate on these wins because they are big they are sophisticated and we have to get them right and we are doing that. The other two questions were Robyn and Rami..

So I can answer the question. One thing I wanted to underscore on the SRX Ehud, so you are right it is lumpy and Q1 we did have a deployment in the service provider area and so that is one of the reasons why we saw the sequential decline in SRX based products.

In terms of Web 2.0 and cable they did drive the growth in the Americas both sequentially and to some extent year-over-year and as Shaygan mentioned three out of our top five customers as a company are in that Web 2.0 cable sector in the quarter.

So they are obviously an important part from a future perspective around the diversification of our revenue. Having said that, obviously our carriers are also very important to us and as we highlighted in the outlook given their size and relevance to our revenue any reduction in their revenue in the near term does have a direct impact on us..

Thank you Robyn. And Ehud on your last question, I would say, suffices to say we are intense of course with our customers all the time and clearly the customers that we work with Cloud Builder, High-IQ types, they are very much want open no lock in and future proof solutions under cloud solutions.

So, that's all I say Rami do you want to say anything else on that from that front?.

I'll just add on the SRX front, there is a service provider component to the business that tends to be somewhat lumpy, the biggest use case being for example LTE security. And then on the Contrail side, I think Shaygan already mentioned it.

The one thing that I will add is that we are seeing that in the first few deployments they are being deployed, Contrail being deployed in heterogeneous networks where there is a combination of Juniper and other peer type of infrastructure and it just speaks to the openness of the solution which our customers very much appreciate..

[And no lock in]..

Yes. Thanks Ehud..

Thanks Ehud.

Next question please operator?.

Thank you. Our next question comes from the line of Jess Lubert with Wells Fargo. Please proceed with your question..

Hi guys. Thanks for taking my question. I was hoping to understand to what degree the delays are likely to be the most impact of routing business in the second half or if you are expecting to see impact in switching and security given many of your carriers who have buying portfolio products.

And then I was also hoping you could help us understand if you expect revenue for the second half of the year to be up relative to the first half of the year and is there any reason we shouldn't expect the overall you to grow in 2014?.

Hi, Jess. So on your first question since they are -- the softness is coming from a couple of U.S. service providers and you are right they buy upon sample, but they are very -- we are very heavily embedded with them with our routing products of MX and TTX series. So the impact is going to be more on our routing rather than switching and security.

And the second question I forgot but I think you will have a Robyn?.

Yes. So overall as we said in terms of the outlook we are expecting a down quarter for the third quarter and we are expecting these delays to impact our fourth quarter as well.

We do expect on the switching side Shaygan mentioned the routing side, we do expect in switching that in the second half of the year that we will grow that business as well the products in switching area. Just bear in mind the compares that we have as is that look at the second half for us to switching.

And on security we expect the same trend that we've seen over the first half that the ScreenOS product will continue to decline and the Junos based SRX platforms will increase over the second half..

Jess this is Kathleen just to answer your question specifically we do expect overall 2014 revenue to be up this year..

Thanks guys..

Thanks Jeff..

Our next question comes from the line of Ben Reitzes with Barclays. Please proceed with your question..

Hi guys. This is Trevor (inaudible) in for Ben.

My questions on security specifically and around the strategy so what gives you the confidence in the strategy in general and the ability to return to growth across the portfolio? While SRX seems to be core to the strategy it’s on a negative trajectory at the same time as 1Q ‘13 and while the other two businesses are growing pretty nicely despite this.

So, at what point does it make sense to consider alternatives given that returns to growth seemingly would require significant investment?.

Hi Trevor this is Shaygan. We are very committed to security. Point number one, I went through in my prepared remarks of the logic behind that behind our SRX based security which we think is very differentiated and it’s a very critical element of cloud builder and high IQ networks.

I don’t want to repeat what I said in my script but you can go it, I think we’ve laid it out very nicely, quickly know what is going to buy cloud with the big giant hole on the side. So that’s why it’s critical for there.

It’s critical for our service provider customers which are even with our increasing diversity of our revenues as you can see, they’re still very material customers. And in their transition to LTE and NFV it is an absolute critical component for their transitions and it works seamlessly with MX and Contrail as hand in glove.

And finally if you come into our labs and see the amount of commonality in terms of componentry Silicon, Chassis, of course Junos software they are all, I would, I think leverage engineering is now doesn't quite do justice too, it's a lot of commonality.

And now that all three switching, routing and security are under our JDI organization that's led by Rami, we expect growth to pick-up over to medium and long-term on our security, the logic is very sound and impeccable and pick-up profitably because of the natural synergies that exists between these product lines.

So yeah, we are very committed to SRX based security products and actually very encouraged to the medium to long-term prospects for the rationale that I went through. Thank you..

Thank you. Our next question comes from the line of Mark Sue with RBC Marketing. Please proceed with your question..

Shaygan, will you recognize the company will keep the assets routing, switching and security/SRX. Are there other non-essential assets that you can further divest or we [missed you] done with that. And as we look at improving the strength of the SRX and perhaps the other product portfolio segments.

Should we think about, how should we think about R&D spending, how should we think about spending potentially going backup or in the process of reducing OpEx but I will be at a point where you need to defend your market share and also improve the products so that the OpEx needs to kind of increase again.

How should we think about from a planning point of view what the steady rate OpEx should be on an annual basis?.

Yes. Mark again very quickly.

As you have managed the business very closely and very prudently, and very focused we continue as a matter of course continue to always look at our portfolio to make sure that they are aligned with our strategy point number one, which is the one you have stated which is IOP which is cloud that there are High-IQ which is around growth and profitable growth that matters to our customers we continue to do that.

As a matter of course we talked about Pulse this was one of them that didn’t fit our (inaudible) charts and we took action.

So that’s just been normal course of our business and now that we have a very clear strategy that we have tested over and over again, internally, externally I just came back with 70 partners and customers, it’s just a very vivid that this is where the world is going and what we are doing is exactly right.

So we have the right filter to balance that upon. The second question is it’s about we are also very committed to our IOP targets and I reemphasized that so you should rest assured there. And I think our track record so far should give you some comfort that we know how to land the IOP targets. And the last question was….

Yes sure, just on the planning purposes on the OpEx side in the slide deck we included our charts, obviously we are committed to the 160 in terms of cost reductions exiting Q1 of 2015 as Shaygan mentioned.

We have also said that will be less than $500 million for Q1 of 2015 we have just achieved the low end of their range for Q2 in terms of 515 and we have given you guidance for 505 plus or minus 5 for both Q3 and Q4.

So, as Shaygan mentioned, we are very committed to the OpEx target and we are doing it in a way that makes it clear that we continue to invest in our long-term future around product development. And yes…. .

And thank you Robyn. And Mark, the last point is IOP is all about focusing on where the market is going and profitable growth. So all the actions we are taking is actually putting our best engineers, our best go-to-market people very focused around areas of growth and strengthening those.

So, as we’ve said before this is not a slash and burn kind of a project. It's very surgical, very focused, we are -- the thing we just did with Pulse and some of the best engineers and so forth and so on.

We all focusing them on the growth of security and SRX based products as opposed to in a wide spectrum of things which we may have net prospects for growth.

So, we feel very good about our strategy and feel very good about our focus on the product line, our level of talent where the products are going, very excited about the pipeline and very extremely happy with the level of customer engagements, the way I described in my prepared remarks in terms of going deep with them on the strategic customers and strategic partners.

This is what IOP is all about. And the good news is when you focus, you also eliminate unnecessary cost. This is what we're doing and we're committed to all of the above. Thank you..

That's helpful. Thank you..

Thank you. Our next question comes from the line of Amitabh Passi. Please proceed with your question..

Hi guys, thanks for squeezing me in. Shaygan, Robyn I was wondering is there a way to quantify what do you think the impact is from the delays with the U.S. based service providers? If I look at the midpoint of your guidance, you are about 85 million short of where consensus was.

And I am just trying to get a sense is the majority of that explained by these delays? And then just a quick follow up on Junos Pulse, Robyn why wouldn't we see incremental OpEx savings in the fourth quarter once the divestiture has occurred?.

Hi Amitabh, this is Shaygan. I think the answer to your first question, quick answer is yes it is those couple of U.S. based service providers for very specific market reasons in their markets and dynamics that have impacted their second half. I will now hand it to Robyn to take the rest..

Yes, in terms of the OpEx related to Pulse that is included in $160 million of OpEx savings. We had identified this as an area for which we believe that we could save some OpEx and focus the company in terms of the overall strategy that we were focused on..

Okay. All right, thanks Amitabh. I would like to thank everyone for joining us today. That is all the time that we have. We appreciate your excellent questions and we look forward to speaking with you again next quarter. Thank you..

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