Kathleen Nemeth - Investor Relations Rami Rahim - Chief Executive Officer Robyn Denholm - Chief Financial and Operations Officer.

Pierre Ferragu - Sanford Bernstein Ehud Gelblum - Citigroup Simona Jankowski - Goldman Sachs Ashwin Kesireddy - JPMorgan Mark Sue - RBC Capital Markets Tal Liani - Bank of America Merrill Lynch Bill Choi - Janney Amitabh Passi - UBS Paul Silverstein - Cowen Subu Subrahmanyan - The Juda Group Brain Modoff - Deutsche Bank.

Greetings. And welcome to the Juniper Networks Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms.

Kathleen Nemeth, Investor Relations for Juniper Networks. Thank you, Ms. Nemeth. You may now begin..

Thank you, Operator. Good afternoon. And welcome to our fourth quarter and fiscal year 2014 conference call. Joining me today are Rami Rahim, Chief Executive Officer; and Robyn Denholm, Chief Financial and Operations Officer.

Today's call may contain forward-looking statements, including statements concerning Juniper's business outlook, economic and market outlook, strategy, future financial operating results, capital return program, the expected amount of our impairment charge and overall future prospects.

Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements are listed in our most recent 10-Q and the press release furnished with our 8-K filed with the SEC today.

All statements made during this call are made only as of today. Juniper undertakes no obligation to update the information in this conference call in the event facts or circumstances change after the date of the call. Our discussion of the financial results today will include non-GAAP results.

Unless otherwise noted, revenue growth rates have been normalized for the sale of the Junos Pulse business. 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.

Full GAAP to non-GAAP reconciliation information, our earnings release and the presentation slides for this call can be found on the Investor Relations section of our website at www.juniper.net. Please note that today’s call is scheduled to last for one hour and please limit your questions to one per phone. With that, I'll turn the call over to Rami..

Thanks, Kathleen, and welcome everyone. I am delighted to join you today on my first quarterly conference call as CEO of Juniper. First, let’s talk about what we have accomplished and what I see ahead. 2014 was a year of significant change for Juniper.

We made major strides having implemented a series of initiative designed to streamline our organization, reduced our cost structure, improve our balance sheet, return capital to our shareholders and drive long-term profitable growth in a challenging revenue environment.

In many areas we exceeded our commitment by working in a more efficient manner with greater accountability and customer connectiveness. And while we achieved much in 2014, I recognize that there is still more we can do to realize the full potential of our company. Rest assured, we are moving with urgency.

We are very excited about the changes that are taking place in the industry and inside Juniper, and we believe that our best days are still ahead. To that end, let me share with you what I have been up to in my first few months as CEO. I have spent considerable time talking and listening to our customers, our partners and our employees.

Working with the senior leadership team, I set out key execution initiatives for 2015 aligned with our R&D and go-to-market strategy in the areas of routing, switching and security for both service providers and enterprise customers.

I appointed Jonathan Davidson as Head of Juniper’s Development and Innovation or JDI to ensure a smooth transition and uninterrupted focus on our product roadmap. Jonathan is an accomplished leader and technologist who knows how to bring focus and clarity to developing the innovative products our customers require.

I moved network automation project that have graduated out of the incubation phase from the office of the CTO to JDI to ensure tighter alignment with the rest of our portfolio and end-to-end solution development. And I oversaw a comprehensive review of the security components of our business including our capabilities and product roadmap.

While my new role at Juniper now has the added dimension of ensuring that our business performs across a range of metric, I will, as I always have try to ensure we build and deliver great products that advance the state-of-the-art and network innovation, and drive long-term growth for the company. I’ll spend some time now articulating our strategy.

How we plan to execute against our vision and our 2015 initiatives. First, our strategy, we will deliver the most scalable, reliable, secure and cost effective networks, while revolutionizing their agility, efficiency and value through automation.

We will focus on customers and partners across our key verticals, who view these network attributes as fundamental to their businesses. Product and solution differentiation with the relentless customer focus will allow us to achieve our primary goal of growing revenue faster than the market.

Second, on execution, our innovation engine is running stronger than ever and we are executing on a compelling product roadmap that will drive future growth across routing, switching and security.

I'm very excited about our product pipeline, which has never been better and will offer our customers break through performance and impressive capabilities unmatched in the industry. In security, I acknowledge that it has underperformed and we recorded a non-cash goodwill impairment charge during the quarter.

2015 will be a year of stabilizing our security revenue. To win insecurity, we are pivoting our strategy to building integrated solutions that focus our network resiliency and business continuity across cloud, data center, branch, campus and service provider mobile infrastructure.

To emphasis, we are focusing on areas where we can compete effectively and I am confident that we will do just that. And importantly, we will be employing a high leverage development strategy that takes advantage of the existing and ongoing innovation within Juniper.

Our common threat through all of this is our Junos based SRX platform, which is adaptable to serve all of this environment and can accommodate the security needs of any number of different use cases.

With this new strategy in effect, we will be delivering substantial enhancements to the SRX platform in 2015 and they will be closely intertwined with the network. We believe this new approach will allow us to deliver superior offering and we have energized team focus on helping our customer get in front of their security challenges.

Our exciting product portfolio along with our focus go-to-market models are coming together to create real competitive advantage for our customers.

We have a sound strategy in place, we are executing well against our plan and we continue to make progress with new design wins and diversification of our business across our target verticals and geographies. I’d like to turn now to the macroenvironment and our business.

I am confident in Juniper’s future and I see substantial opportunities to grow and deliver value over the long-term. In the near-term, we continue to face headwinds in U.S. carrier spending. However, we do expect an improvement in spending in the later half of this year.

We have signaled in July of 2014 that the market was going to be challenging and we ran our business under the assumption that it would be so for the full four quarters cycles that we have historical seen.

Based on recent conversations with our customers, we still expect that to be the case with a return to growth in investment in the second half of this year. Although 2014 routing revenue declined 4%, the diversity of our business helped offset the decline from U.S. carriers.

We continue to see growth in routing from cloud providers, cable, financial services and strategic enterprise customers that are building and operating their own network infrastructure. In switching, we are just at the early stages of an exciting journey of growth.

It will be more to come from me over time on this topic as we take a leap in performance in automation in the datacenter switching space. Let me announce that expectations moving forward. While we navigate industry and customer dynamics in the near term, we have continued to focus on things that matter most to our customers and our shareholders.

There are no changes to our planning assumption. Juniper remains committed to the financial targets we set out at our Investor Day last October where we stated an overall growth rate of 3% to 6% over the next three years. We are continuing to manage the business prudently.

We maintain our stated non-GAAP OpEx target of $1.9 billion plus or minus $25 million. We are also committed to continuing the aggressive capital return plans that we have been executing again. To summarize, our team remains steadfast.

We will drive profitable growth and develop and deliver the innovative IP networking products and solutions that our customers rely on. We will continue to be intensely focused on operational excellence, cost discipline and targeted growth initiative. I will be monitoring our business closely and will report on our progress quarterly.

In closing, I thank our employees for their resiliency through a year of much change. Juniper employees around the world continue to focus on executing as one Juniper. And I’m proud of and grateful for their dedication. I also appreciate the continued support of our shareholders, partners and customers.

Now, I’ll turn it over to Robyn to provide more details of our financial results and our revenue outlook for the first quarter of 2015..

Thank you, Rami and good afternoon everyone. Before I review the Q4 and full year results, I want to update you on our restructuring and share repurchases, as well as give you the context of the goodwill impairment charge. We have completed the restructuring actions that we first announced in February of 2014.

In Q4, we exceeded our expense reduction commitment and implemented the additional structural actions to achieve the $1.9 billion plus or minus $25 million OpEx target for 2015.

As Rami mentioned, one of the actions we completed during the quarter was the tightened focus of our security portfolio, allowing us to dedicate our security resources to the SRX platform. Total restructuring and asset write-down charges for Q4 were approximately $29 million and for the full year 2014 were $209 million.

We also finalized the sale of Junos Pulse and recorded $20 million net gain. We are executing very well on our capital return plans. We paid a quarterly dividend of $0.10 per share in December and repurchased $500 million of shares in Q4.

For 2014, we have returned $2.3 billion of capital to shareholders and we are reaffirming our commitment to return a total of $4.1 billion to our shareholders through 2016. Overall, I’m very pleased with our cost structure and the progress that we’ve made towards achieving the capital return commitments we made to our shareholders.

Now, I’d like to address the goodwill impairment charge that we recorded in Q4. As required under GAAP accounting rules, we will perform a regular review of the carrying value of goodwill. During Q4, this review resulted in an estimated non-cash impairment charge of $850 million related to the goodwill of our security reporting unit.

There are several factors which contributed to this impairment including the recent underperformance of this reporting unit and our assets to refocus our security offerings in addition to the divestitures of Junos Pulse.

Combined these factors result in a delay in achieving revenue and profit forecast needed to support the historical security goodwill valuation. I want to remind everyone that this accounting charge has no direct effect on Juniper’s cash balance, operating cash flows or business outlook.

We remain committed to the long-term growth targets that we outlined at our October investor meeting. Now, let’s return to an analysis of the Q4 result. As a reminder, the following revenue commentary and growth rates have been normalized for the sale of Junos Pulse. Overall, revenue and demands of the fourth quarter was better than we expected.

However, the things that we have discussed over the last six months remain consistent. That is large U.S. carrier demand continues to be vague but has been somewhat offset by healthy demand from cloud providers and cable customers, pockets of momentum in EMEA and APAC service providers and improving enterprise demand.

Looking at our demand metrics, products book to bill was much greater than one. We exceeded 2014 with about $445 million in product backlog. Total revenue for the quarter was $1,102 billion, down 11% year-over-year and up 1% sequentially. Product revenue was $794 million, down 17% from last year and essentially flat quarter-over-quarter.

Services revenue was $308 million, up 8% year-over-year and 2% from the prior quarter. Non-GAAP diluted earnings per share were $0.41, excluding the benefit of the R&D tax credit of $0.03, non-GAAP diluted earnings would have been down $0.05 per share year-over-year and up $0.02 sequentially.

The year-over-year decrease was primarily due to lower revenue, partially offset by the cost reductions and the positive impact of $0.06 from reduced checkout. The sequential increase was largely driven by improvements in our cost structure.

For the quarter, GAAP loss per share was $1.81, which includes the $850 million impact from the goodwill impairment charge. Excluding this impairment charge, diluted earnings per share would have been $0.19.

Included in this result is $0.07 impact for restructuring and other charges and $0.04 benefit from the renewal of the R&D tax credit and a $0.05 benefit from the gain of the sale of Junos Pulse. Now let’s look at revenue results in detail by the product area.

Routing product revenue was $523 million, down 15% year-over-year and a 2% decline from the prior quarter. Year-over-year decline was driven by weakness from our large U.S. carriers partially offset by strength in cloud providers. Switching product revenue was $174 million, a decrease of 12% year-over-year, primarily due to declines in enterprise.

Quarter-over-quarter switching product revenue increased 13%, driven by demand from cloud providers and financial services for our QFX products. Security product revenue was $97 million, rather disappointing 28% year-over-year and 9% sequentially. The decrease was due to a decline in the SRX platform from U.S.

carrier customers, as well as the continued declines from ScreenOS products. Moving on to gross margins and operating expenses. Non-GAAP gross margins for the quarter were 64.1%, compared to 64.2% a year ago and the elevated level of 65.2% last quarter.

Non-GAAP product gross margins were 64.3%, down six-tenths of a point from a year ago and 1.8 points from last quarter. The expected sequential decline was primarily attributable to a shift in product and geography mix. Non-GAAP services gross margins was 63.6%, up 1.7 points from a year ago and six-tenths of a point quarter-over-quarter.

This increase was due to lower support-related costs from operational improvements and variable cost savings. We are pleased to report that our non-GAAP operating expenses were $465 million, below our guidance range and down $74 million, or 14% year-over-year.

This reflects the implementation of the additional cost savings commitment announced on our Q3 2014 earnings call, as well as the significant benefit from the reduction in variable expenses in the quarter. Our headcount ended the year at 8,806, a decline of 677 employees or 7% year-over-year.

Non-GAAP operating margins for the quarter were 21.9%, flat year-over-year despite lower revenue. This is due to our significant focus on cost reduction efforts. The non-GAAP tax rate was 21%, down 6.1 points from the prior quarter, primarily due to the $13 million of one-time benefits from the renewal of the R&D tax credit for 2014.

The GAAP tax expense in the quarter was $75 million on a GAAP loss of $694 million, resulting in a negative tax rate of 11%. The GAAP loss is due to the goodwill impairment charge, which is the non-deductible tax item. The GAAP tax rate this quarter was also impacted by the gain on the sale of Junos Pulse.

Now, I’d like to discuss the 2014 full year results. Total revenue was $4,532 billion, approximately flat from last year. For the full year, large U.S. carrier revenues declined, offset by an increase from cloud providers and cables and a steady performance from enterprise.

While we are not happy with the overall results, we are successfully achieving diversification of our customer service and increasing the relevance of our products across multiple customers’ segment. We are adding product revenues and finished the year down 4%, primarily due to the softness from U.S. carriers in the second half.

Switching product revenue was up 13% for the full year, driven by growth from cloud providers. Security product revenue was down 14% for the full year. This decrease was primarily due to a decline in the legacy ScreenOS products. Non-GAAP gross margin was 64.3% for the full year, approximately flat with 2013.

This is a good result and represents the value our customers’ same innovation, as well as our intense focus on supply chain cost reductions. The benefits of which offsets both revenue mix changes and the normal levels of pricing pressure. I’m pleased with the improvement in our overall cost structure.

We ended the year with $2.15 billion of non-GAAP operating expenses, down $88 million or 4% from 2013. This decrease in OpEx allowed us to expand non-GAAP operating margins by 1.5 points to end the full year at 20.7%, despite the challenging revenue environment. Non-GAAP diluted earnings were $1.45, up $0.17 or 13% year-over-year.

This increase was primarily due to positive impact of approximately $0.12 per share from a reduction in share count of 9% year-over-year, as well as significantly lower operating expenses for the full year. GAAP loss per share was $0.73, which includes the impact from the goodwill impairment charge.

Excluding this charge, GAAP diluted earnings per share would have been $1.11, inclusive of the $0.45 impact of restructuring and other charges. We ended the fourth quarter with approximately $1.8 billion of net cash and investments. The decline from Q3 was primarily due to the capital return of $542 million in the quarter.

For the quarter, we generated good operating cash flow of $291 million and $763 million for the full year. DSO was 49 days, which is flat from last quarter.

During 2014, in order to foster our channel business and reduce our expenses, we transition some of that distributor financing to Juniper’s balance sheet through a targeted financial services program with certain partners. Going forward, we expect DSO to be in a range of 45 to 55 days. Now, I will provide an outlook for Q1 of 2015.

As a reminder, these metrics are provided on a non-GAAP basis except for revenue and share count. We continue to expect that demand environment for our largest U.S. carrier customers to be challenging throughout the first half of 2015.

As we have said, we are two quarters into what we expect to be a full quarter cycle and as a result, we remain cautious in our revenue planning assumption. For the first quarter of 2015, we expect revenues to range from $1.20 billion to $1.60 billion.

Gross margins are expected to be 63.5%, plus or minus 0.5% at the lower end of our long-term range due to the lower volume. Operating expenses are expected to be $475 million, plus or minus $5 million and as a reminder, our Q4 2014 results included a significant benefit of variable cost savings.

We remain focused on our cost structure and we are committed to managing expenses throughout 2015. Operating margins are expected to be approximately 18% at the midpoint of guidance. And we expect the non-GAAP tax rate to be 27% for the first quarter, assuming no extensions of the R&D tax credit for 2015.

We expect diluted earnings per share of between $0.28 and $0.32 per share, assuming a weighted average share count of approximately $420 million. I’m also pleased to report that the Board has approved a dividend of $0.10 per share for the first quarter. I would like to thank our teams for their continued dedication and commitment to Juniper’s success.

Now, let’s open the call for questions..

Thank you. [Operator Instructions] Our first question is from Pierre Ferragu of Sanford Bernstein. Please go ahead..

Hi. Thank you for taking my question.

Maybe on your -- on all the comments you’ve made on the service provider outlook, do you have a sense from technicians you had with your clients of what drove so relatively sudden slowdown in spending that started about a couple of quarters ago? And/or so what would be the driver behind like recovering, spending in the second half of the year? And then beyond the -- of course beyond the U.S.

and the rest of the world, if you could give us a bit of flavor of how the service provider business is likely to reply for you in 2015. What I am wondering of course is, if we have a recovery in the second half of 2015 in the U.S.

and if it becomes more clearly visual for you, is there a risk of seeing the sustaining in the rest of the world? Thank you..

Okay. Thank you, Pierre. So let me just address your first question, which is around the service provider outlook, primarily here in the United States. There are number of factors that we look at.

Obviously as we talk to our customers and we engage with them very closely, number one would be things around the timing of projects that we’ve been working with them on.

We are looking obviously at macro trends that are happening around M&A activity, the investment split between wireline and wireless that are large service provider customers that are currently expecting to undertake spectrum auctions.

All of these have contributed to our assessment, but it makes sense for us at this point to maintain our prudent outlook looking forward and manage our business accordingly. Now that said, we are engaging with them on an ongoing basis.

And based on that engagement, the timing of projects and so forth, we do anticipate that their investment levels would start to recover in the second half of this year.

On your second question, which is more around the geo-profile for service providers, and maybe more broadly speaking, let me just touch on the Juniper business as it pertains to our performance across the globe. And I will touch on it more from a service provider standpoint, because I believe that’s what you’re interested in just from your question.

In EMEA, I am actually pleased with our performance and the momentum that we’re seeing both in the smaller Tier 2, Tier 3 service providers that have really adopted a number of our products, especially our MX and PTX products as a build-out converged infrastructures and we are actually seeing some good momentum in the quarter as well in the Q4 timeframe.

And in APAC, there its bit more of a complex answer because I think the situation in places like China is somewhat different than the outside of China. In China, we have to be very laser-focused on opportunities that we believe we actually have a good chance of winning and it’s very much a partner-led model in doing so.

And that can result in some lumpiness. Now we actually had some good sequential performance in China in Q4. But generally speaking, as I said, that could be lumpy.

More broadly speaking, outside of China, as you look at South Asia for example, there based on a number of wins that we’ve had historically and ongoing projects that we are working on, we are actually doing quite well and I am pleased with our performance there. And I expect that to continue throughout this year in 2015..

Thank you. Next question please..

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

Hey, guys. Thank you. Appreciate it. Couple of things. First of all, Rami, just an open-ended question, I know, it’s been more specific.

But the open-end question is, what difference are you -- you’re making a lot of difference I’m sure, but what different strategies have you set in place vis-à-vis website I was doing when you first came in and I did a full review of the product portfolio and took a look at couple businesses, continues posting one of that sold? Are there any other fundamental things that you’re changing or are you basically just taking current strategy that was there before that you obviously had a lot to do with and continuing it nicely? I have a follow-up that’s more specific [indiscernible]?.

Okay. Let me address that question, thanks Ehud. So first, yes, you are right, you have to keep in mind that I was a part of the leadership team that developed, created that strategy and it’s a strategy that I very much believe in.

It’s a strategy that from a go-to-market standpoint is laser-focused on key verticals that we believe will value the types of technologies and products that we develop and where we have the maximum chance of success.

It’s a strategy where from an R&D standpoint, we’re really executing on the performance, scale capabilities that customers require, but just as importantly the software-driven innovation around automation, absolutely fundamental. So, that all remains absolutely intact. And we are executing towards that.

There are changes or twist to the strategy as it pertains to security. I mentioned some of that in my prepared remarks upfront. But just to reiterate, we are pivoting away from thinking about security from a standpoint of Point products.

We are moving much more towards integrated solutions across switching, routing and security that address domain level problems that our customers want from us. And we are executing on a very high leverage strategy and engineering across switching, routing and security.

I will just say that there are tremendous assets across silicon and routing, or as I should say silicon and software that have largely gone untapped for security.

And we have this incredible opportunity as a part, as a function of this new strategy to leverage these assets to give us relatively quick gains in the performance, scale and capabilities of our security products, and that’s exactly what we’re going to be executing on now..

You had a follow-up. Go ahead. Okay. The next question..

Certainly, the next question is from Simona Jankowski with Goldman Sachs. Please go ahead..

Hi. Thanks very much. I just wanted to ask how much visibility you have into the ramp in the second half with some of your U.S.

carrier customers and specifically the timing of the domain sort of ramp that you’ve been designed into? And taking that into account, assuming that those customers can normalize in the second half do you think it’s possible for your revenues for the year to grow as a whole?.

Okay. So as far as the service provider timing, nobody has a crystal ball that tells us exactly what is going to be. But again based on the data that we gathered from our customer on an ongoing basis and understanding of the macro trends, we do believe second half will resume the growth that we had anticipated as we have said earlier Simona.

I can’t really talk about any specific projects, but I will say this, we are very tightly aligned with our large service provider customers, both here in the U.S. and outside of the U.S. Everybody, many of our customers are looking at new approach to delivering services to their end users using cloud-based service delivery models.

And I believe that we are very well-positioned with the products that we have [Technical Difficulty] having the strategy that we’re executing on to set ourselves up to participate in the growth once it resumes.

So I can’t talk about any specific projects, but I can say, products like our virtual MX, products like the virtual SRX or what we call the Firefly that really represent a new way of service delivery using cloud-based models are exactly the kind of products that our customers are requesting today.

And I think set ourselves up for success when spending starts to recover..

Next question please..

Thank you. The next question is from Ashwin Kesireddy of JPMorgan. Please go ahead..

Hi. Thanks for taking my question. Rami, could you comment on the strength in switching and how should we think about that going forward? Any color you could provide on the drivers of market share gains will be helpful.

And I was hoping you could elaborate on some of the security features you’re planning to add to SRX and give us more concrete timelines on when you’re planning to add these new features. And then I’ve got one question for Robyn. I was trying to understand some of the factors that could have influenced the timing of the impairment.

Why did you decide to pay that now? Is it just due to normal year end process? Are there any changes in customer contracts or other factors that could have led to this?.

Okay. Thanks for the question. Let me start with the switching and security and then I’ll pass it over to Robyn for your last question.

On the switching side, I think you need to keep in mind that around two, two and a half years ago, we took a step back and under -- and we set up a new strategy in switching or we took a lot of lessons that we had learned from the first set of products that we introduced into the market in the roadmap that we are now executing towards.

So if you look at what we just announced last year, our QFX5100, our OCX1100 product, which is essentially a Junos-based white box switch. These are just the beginning of what I would consider a very compelling product roadmap that our customers are going to respond very well to in switching.

And I have alluded to in the past and I will just reiterate again that we will continue the rolling thunder if you will of new products and switching this year that will contribute to the momentum that we expect. Now there are two dimensions to our switching business. There is, of course, the enterprise and the service provider.

Service provider dimension has always been somewhat lumpy, and as a result of that predicting the ups and downs is not going to be all that easy, but I expect to continue to take market share in switching as a result of our go-to-market focus and our product strategy.

In security, I can't really get into the timing, although you'll find out when we make the public announcements. I will just say that I'm very excited and encouraged by what the team has accomplished thus far. And just to give you a clue, because it is a high leverage strategy, it does not involve a large amount of time.

We’re essentially leveraging technologies that we have already developed in the company but now packaging them up and testing them in a way that they contribute to our security capabilities. And they will be capabilities from the standpoint of performance, scale and our ability to detect and stop threat factors in the competition.

Robyn?.

And so Ashwin, let me just address the goodwill and the timing of the impairment charge. We do a regular review of the current value of goodwill as required under GAAP. In Q4, the underperformance of the security revenues continued and so we took another look at that.

In Q4, we also took into account the other factors that I mentioned in my prepared remarks around the restructuring that we have done in that business area in the security roadmaps and then also the pivot on the strategy as well.

So all of those, as Rami mentioned before, culminated after his review of the security portfolio and so it’s the combination of factors. It’s not one factor that led us to impair the goodwill, the continuing underperformance and the product rationalization that we’ve completed now..

Okay. Next question..

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

Thank you. Rami, security, are we too lead into security at no longer standalone products in the future. Will you be leading and integrating it into routing and switching platforms, and is that something that customers are asking for? And then, Robyn on cash, you are returning more than your annual cash flow in buybacks and dividends.

How should we think of cash flow from operations going forward? I think it’s around $800 million a year, maybe if you could just help us understand cash generation here versus abroad and the subsequent appropriate debt-to-equity ratio for Juniper?.

Okay. Thanks, Mark. Let me start with the security question first and then I’ll pass it over to Robyn.

I believe, the industry is moving in the direction in which securities increasingly being intimately tied with switching and routing, where understanding traffic pattern and flows through switches and routers actually allow you to improve your security posture, substantially, overall, when you look at a domain like the data center cloud or the service provider edge.

So that’s effectively the strategy that we’re going to be executing towards. It does involve building security products and they are going to be very effective security products, but those products are going to be very much integrated if you will from a solution standpoint to switching and routing.

They’re going to be tested together and there will be a very high leveraging of technology components between silicon and software across three of these product lines.

So think of it from the standpoint of lots of cost synergies from the leveraging of technology, as well as revenue energy, very commensurate with what I believe that the industry is heading toward and how they think about the combinations of these products.

Robyn?.

Thanks, Rami. And so, Mark, in terms of the cash position, as we mentioned that, we had strong operating cash flows for the year of 2014 about $763 million. We do generate cash strongly from the business in terms of our operating cash flow. We did last year return more than our free cash flow to shareholders.

On the past, we’re on that task too and efficient capital structure as we’ve outlined previously. And therefore, you would expect that to happen last year and through the first half of this year, we anticipate buying back about a billion dollar shares as we’ve talked about before part of our repurchase and capital return program.

In terms of overall debt to cash ratio, we are looking to maintain our investment grade rating and therefore, we’ll be now financial means in order to maintain that rating. And so that is what we’re doing as a company and we continuing to execute to that capital -- efficient capital structure, as well as our investment credit rating..

Next question please?.

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

Hi, guys. Sorry, I had to take it off mute. I have two quick questions. First one is about services, it declined 2.8% sequentially and in prior years it was always up in the fourth quarter. What is driving? I thought it's more stable source of revenue, so what is driving the decline? Second question is a follow-up …...

Tal. Sorry, I was going to answer that one for you..

All right..

Allow me to do that one for you?.

Yes..

So, Tal, we provided to table in the slides. The decline was purely the result of the post divestiture. So when you normalize to that services for the post business, we’re actually sequentially up.

And so that business is very healthy as you see by the operating margins that we are yielding and actually the revenue continues to increase quite agnostically well..

Thank you. So the question is about security and I am trying to understand the decline this quarter because over the last three years, there were two parts of security. SRX was up and the old NetScreen was down.

And the magnitude of the decline this quarter suggest that SRX also has issues in the quarter that we -- in the period of time, not just the quarter where we see all other security companies reporting very strong quarters, very strong results.

And I’m trying to understand what is wrong with SRX that is driving or what is missing, maybe it’s a better way to phrase it? What is missing in SRX that is driving revenues down that much and how can you fix it? Can you discuss the parts that are weak and you are going to improve? Thanks..

Yeah. Sure, Tal. So you are right that there are two components to our security business. First is the NetScreen products or the ScreenOS products that have been in decline and continue to be decline, a fairly rapid decline in fact and now represents a relatively smaller fraction of our overall security business.

The SRX products, they are the high end and the low end component and especially the high end component does have a sort of a lumpiness to it because it relies on large deals and typically they are service provider deals around the world. So, we did see that impacts us to some extent in the Q4 timeframe.

But I think the overarching message that I want to get across on this call is that I am not pleased or satisfied with the performance of our security business. I think we can and will do better and this is a competitive space and we have to operate and innovate under that assumption.

And that requires that we take a much more focused approach and ensuring that these products, the ones that you are asking about the Junos based products are going to be incredibly competitive against everybody else in the industry, especially as it pertains to integrated solutions of security and routing.

That’s exactly what we are going to be focusing on, and that’s where you are going to see some of the enhancements that I have talked about coming out later this year..

Thanks, Tal.

Next question, Operator?.

Certainly. The next question is from Bill Choi of Janney. Please go ahead..

Okay. Thanks. Unfortunately, I’m going to have to go back to security here as well. I guess the problem we are having Rami is security, if anything is getting more specialized, not generically integrated with networking component. So, I could see from Juniper’s side how you could leverage your existing strengths and try to differentiate your solution.

But which customers are actually asking for this? Is this kind of to Tal’s question, what kind of competitive dynamics are you seeing? Are you losing, when you are just focusing on your prior strength of your scalability, flows session? I mean, these were good enough to win, lead your businesses with mobile customers who were actually buying a ton of Gi firewalls going forward.

So that’s probably the big one.

Second just, if you guys could try to give a little more quantifications of the very positive comment on book-to-bill and perhaps kind of the visibility you might have on a product level basis, core versus edge routing and whether it’s more of the switching design wins that you had that is converting into revenue? Thanks..

Yeah. Sure. Bill, thanks for the question. Let me address the security question and then I will hand it over to Robyn to talk about the financial metric that you are asking about. All right.

The strategy that we need to be on is in fact the one that you are taking about right now, where we can -- we have to focus in areas where we can in fact be effective, where we actually have been effective historically.

If for example, you are talking about the Gi firewall, their scale, performance, power efficiencies and the effectiveness of stopping attacks is very much there. And there are in fact synergies there with routing.

And so this back-to-basics approach that I have just described or I can leverage some of the silicon enhancements that I have already funded, that I have already invested in to improve my routing and switching, can be used very effectively and securities can be done and that’s what we will do.

So, I recognized that we are probably stretching your patience a little bit here with respect to this business. But I also want to emphasize that I’ve taken now a thorough look as part of my onboarding as CEO. And I’ve looked at, where it is that we should focus and where we should not focus.

And as a result of that, we’ve come out with this high-leverage strategy that I think will make us very competitive in the securities space..

And Bill, in terms of the book-to-bill, I can say that it was greater than one in fact I think much greater than one you replace with the book-to-bill, our backlog was at about $445 million exiting the year, roughly flat with the beginning of the fiscal year, which we’ll replace about..

Thank you.

Next question please?.

Thank you. The next question is from Amitabh Passi of UBS. Please go ahead..

Hi. Thank you. I had question and then a follow-up. I guess my first question was for you Robyn. The midpoint of your revenue guidance is roughly about $1.04 billion. I think for last quarter it was $1.05 billion but your guided gross margins at 64% plus or minus last quarter and this quarter at 63.5%.

So nothing of fact, just curious why the 50 basis point reduction and should we expect things to normalize around 64% as we progress through the year?.

Yes, but firstly thanks Amitabh. In terms of the gross margins to date, we did call out for the guidance range that there will be towards the low end of our long-term model that we’re actually -- have been our long term targets that we called out in October.

And then it’s a fixed result of Q1 mix in all that volume reduction as we mentioned in the prepared remarks. In terms of the ongoing gross margin on place with the performance of gross margin as I’ve mentioned for the full year of 2014, we were roughly flat with ’13.

That’s really a reflection of the intense focus that we have on the cost side of the supply chain and also a reflection of the value that customers see in the innovation that we are bringing to market. And so as we move forward here, we expect to be in the range that I talked about at the Investor Day which is 64 plus or minus a bit..

I think there is still a lot of confusion out there in terms of what exactly vMX means for you for Juniper.

Can you maybe clarify for us how exactly are you positioning the vMX? What are you hearing from your customers initially and how do they intend to buy the vMS versus your physical MX?.

Yeah, sure. Let me try to demystify it for you. So if you look at Juniper’s routing business overall, vMX is in fact a router, just has to be a virtualized router. We make the bulk of our revenue in the high performance end of that range i.e.

the larger systems are the systems that sell the most, just by virtue of the applications and the used cases that we are solving for our customers. There is also market out there for low end routers. It’s a market that we are not as penetrated in today.

It is a market where this trend of virtualization will in fact impact first because virtualization i.e. this movement of services in the case of virtual MX. It’s a layer three routing service on to virtual machines that fit on standard servers is interesting in some -- and it’s ability to deliver agility to our customers.

But it certainly cannot keep up with the performance that our customers require for their high-end applications where we already are very well penetrated today. So the net of what I’ve just said is that, the Virtual MX represents a great opportunity for Juniper to go after the low-end routing environment and use cases for our customers.

So where are our customers are thinking about deploying small PE router that the service provide edge, they now might consider using a Virtual MX software license, download it off of our website and deployed on a standard rack servers, that’s a revenue opportunity for Juniper and of course, the profit opportunity for Juniper.

So it’s highly complimentary with the rest of our portfolio. It still, I don’t -- I want to also set some expectation, because the market is still in its early stages here. This is a developing market.

But in developing and shipping this product, we are essentially sending the message and putting a stake in the ground to our customers that we want to participate in this emerging market with really compelling feature rich products, a product like this is one that we are -- we have to be proud enough of to put the MX logo on it and that’s essentially what we have done..

Thank you. Next question..

The next question is from Paul Silverstein of Cowen. Please go ahead..

Thank you. Rami, I think a short way, in recent history all of you noticed that is, you are particularly focused on cloud opportunity and enterprise switching business.

My question is, can you give us some breakdown between the cloud, data center portion of business than more generic to your assortment price campus use? And as we go forward, many metrics you can offer us in terms of number of customers, progress, et cetera, that speak to your success, to wonder you are another to go forward with respect to your switching business? And one additional question, with respect to your new products in 2015, switching and routing? How much of the growth you expect will come from these new products and given that historically, there is a lag period for any company between product introduction and revenue generation, you are assuming success? What is the timeframe? What do you expecting in terms of timeframe in that as well?.

Paul, it’s Kathleen.

So we are as you know running closer on time, so which question would you like to prioritize?.

We will go with the first one Kathleen?.

All right. So the one on the cloud..

Okay. So on the cloud and especially as it pertain to the switching opportunity. If you look at our business today, there -- the bulk of our switching product fell into either data center or some combination of data center and campus.

And even when you look at the campus dimension of this, it’s actually the larger, more mission critical campuses that we are going after, because quite frankly, it’s geared toward customers that care about carrier class capabilities, performance and scalability that we address very well. So that is how I would look at the business today.

Now as we start to introduce some of the new products. Certainly, we will have an opportunity to go deeper into these exiting opportunities and the enterprise for data center and mission critical campus. But we also open up new opportunities in the cloud providers and financial services in particular.

That’s how we’d characterize where we are today and the opportunity going forward. I’ll just touch very briefly on the second question which is a -- yes, I mean, you’re right. Even if we introduce new products this year, there is the typical certification and qualification cycle that can take a quarter -- I should say few quarters by our customers.

Enterprise customers will typical make that more on the lower end of the range, maybe a quarter to two quarters service by the customers could take nine months to a year of certification..

Next question?.

Thank you. The next question is from Subu Subrahmanyan of The Juda Group. Please go ahead..

Thank you. Rami, I wanted to ask about customer segments. You made the point at analyst event, how the cloud operators now represent 16% of revenues versus 14% for the U.S. large service providers. So one part of the growth story is waiting for the U.S. service providers tend to get better, the other part is you have higher exposure to the growing parts.

So can you talk about the puts and takes, maybe talk about what the growth rate you’re seeing in the faster growing segments are and how much reliance you still have on U.S.

service providers to get better to see growth return in the second half?.

Yeah. Sure, Subu. So certainly, you picked up on something that’s very important, which is that -- and you see this in our Q4 results, in fact, which is that we have offset some of the weakness in the large U.S. service providers by diversifying our business across a number of key verticals including cloud providers and cable.

That is by design, that is very much a function of our strategy. And I think that’s a very healthy thing to do and we will continue to do just that. So whereas we anticipate a recovery in spending by our large service provider customers in the second half, we certainly are not counting completely on that.

We’re also executing on this high diversification strategy across all of our key verticals both from a go-to-market focus standpoint as well as from the solutions that we’re developing for those verticals..

And Subu, if I can just add, in my prepared remarks today, I talked about the full year of 2014, just like at the Analyst Day, I talked about the three quarters through the end of Q3 of 2014. A similar sort of pattern as Rami mentioned happened in the fourth quarter as well. What we thought for the full year of 2014 is that the U.S.

large service providers were actually down year-over-year and they were offset by growth in cable and content service providers.

And that was the thing that we talked about at the Analyst Day as being an important one because what it does is that it shows not only the diversification of the revenue but also the applicability of the technology and the solutions that we’re developing across multiple customer segment and that includes the Enterprise, because enterprise for the full year was pretty steady.

It was actually a good performance for enterprise for the year. So, I think that is a very big part of the leverage strategy that Rami’s talked about in terms of the product portfolio that we have and also going forward in terms of growth, targeting those areas that are going faster than the rest..

Next question?.

Thank you. The next question is from Brain Modoff with Deutsche Bank. Please go ahead..

Yeah, guys. Question really on the switching side. You’ve been really selling mainly top-of-rack switches, two main competitors in the spine switchovers than Cisco. I know you’ve got to work in that area. When can we see a product and how you plan to target it from your go-to market strategy and that’s it? Thanks..

Yeah. Sure. Thanks Brian. You are right. I think that the switching products that we have today limit the opportunities to very specific opportunities that we go after, where we know that we can be successful based on the capabilities of our product portfolio.

We do have a programmable spine today that’s very useful for certain types of cloud data centers and campus environment, this is EX9200. But that said, if the requirement is more around very dense spine switches than there the product positions that we have is the QFabric.

Now, yes, I have alluded to the fact that we are introducing more products in the switching space of this year and certainly I expect that those products are going to help us address a broader set of applications across a broader set of vertical markets, including as I just mentioned in the cloud provider space..

Okay. That is all the time we have this afternoon. Thank you so much for joining us today. Thank you..

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