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Fri 18 Dec 2015 01:08 AM

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Steadying the ship: Rami Rahim

In his 19 years at Juniper Networks, Rami Rahim has seen a start-up grow to become an $11bn Silicon Valley giant. After taking over as CEO during a tough period for the firm, his results are starting to speak for themselves

Steadying the ship: Rami Rahim

Rami Rahim is one of those rare beasts — a man who has spent almost two decades in Silicon Valley working for the same company.

That company is Juniper Networks, which Rahim joined as its 32nd employee and its most junior engineer. Juniper initially made its name building and selling routers — the machines that help to funnel massive amounts of data at high speeds around the internet. And since its launch in 1996, the firm has grown at a rapid rate, now commanding a market cap of just over $11bn.

Rahim — a relaxed and gregarious interviewee — has seen his own fortunes rise along with the company. From helping to develop Juniper’s first product to moving into management, the Lebanon-born engineer took on the top job at the firm in November last year.

“No year at Juniper has been the same as the previous year,” he says. “I’ve learned something every step of the way, and that has really helped me because I have a lot of insight into the challenges that our customers face, and a deep appreciation for how technology solves those challenges.

Rahim’s appointment as CEO, which was welcomed by analysts, turned the page on a tough period for Juniper. His predecessor, Shaygan Kheradpir, who had previously worked in the finance industry, quit in November last year after a brief but painful 10 months in the hot seat. During his sojourn as CEO, Kheradpir oversaw a $160m cost-cutting programme - which included laying off 6 percent of Juniper’s staff — and came under pressure from two activist investors concerned about the firm’s stagnant share price. Staff morale dropped and by the time Kheradpir had agreed to step down, Juniper’s share price had slid by 9 percent in 2014, making it one of the worst-performing stocks in the S&P500.

For Juniper Networks, a company that had made its name posting stellar growth numbers year after year since its foundation in 1996, last year came as something of a rude awakening. From annual revenues of $3.8m in 1998, the company’s initial public offering (IPO) sent its stock soaring nearly 200 percent on the first day of trading, a then-record that instantly made it a genuine Wall Street darling. By 2004, Juniper had hit $4bn in revenues and was taking a massive bite out of the market share of Cisco Systems, its older and more established rival.

But, as the firm matured, the breakneck pace of growth slowed. Juniper pulled in $4.6bn in revenues in 2014, on a par with the year before, and posted a $334m net loss — though the latter was largely due to an $850m hit from a non-cash goodwill impairment charge.

Rahim doesn’t mince his words when he describes the situation he faced when he took on the top job at Juniper.

“Because of the change we undertook as a company in 2014, there were people that were worn out, that needed to be inspired and motivated again,” he says. “So helping people to see the full potential of this company was initially one of the more difficult things that I had to do.”

Rahim says he spent the first few months of his tenure in candid discussions with people both inside and outside Juniper, which helped him form a strategy. “Really, since then, it’s been all about execution on those imperatives and innovation,” he says. “When we kicked off this year, we went out with a big bang announcement of a new set of products that solves some of the most difficult networking challenges in the industry.

“I have not been this excited about the products that we’re developing and getting to market as I speak, since probably the introduction of our first product, the M40.”

Given that Juniper’s M40 router changed the game when it came to accelerating the movement of booming internet traffic through nationwide networks (instantly bringing the firm a 15 percent slice of the market), that’s a pretty tall order. But Rahim’s faith in the new strategy looks like it’s well placed. As of last Tuesday, Juniper’s stock was up just over 28 percent in the year to date. And in October, the firm announced a 34 percent increase in third-quarter profits year-on-year, boosted by an 11 percent rise in revenues.

“Juniper has been a bit of a soft target for a while, and it’s now getting back to where it used to be, regathering some of its old glory,” Synergy Research Group chief analyst John Dinsdale said when the third-quarter figures were announced.

Those results were supported by a 30 percent rise in switching revenue, while routing and security product revenue were both up by 13 percent year-on-year. From a geographical perspective, Juniper saw improvement in each of its three regions, with Europe, the Middle East and Africa (EMEA) posting the best growth at 27 percent year-on-year. Rahim says that diversifying revenue sources has been a pillar of his strategy, especially given the cyclical nature of investment from large telcos (previously a significant part of Juniper’s customer base).

“We’ve been trying to diversify our business across different technology areas, different geographies and also across vertical market segments, so Juniper is no longer a company that focuses exclusively on telcos,” he says.

“Our enterprise business saw great growth in the third-quarter timeframe, and large cloud operators around the world have been a very healthy set of customers for us in driving that growth. So that diversity has helped us offset some of that cyclicality and enabled us to grow consistently over the last few quarters.”

The new products that are driving sales include enhanced routers, a new set of ‘spine switches’ and what Rahim refers to as the “world’s fastest firewall”. Altogether, he thinks the products will go some way to solving some of the challenges that all companies face right now.

“Today, CEOs have to deal with unprecedented growth in network capacity while their revenue and profitability is under pressure. The CIOs of large Fortune 500 enterprises wake up every day thinking: ‘How am I going to stay relevant to the strategy of my business when 70-80 percent of my resources are just devoted to keeping the lights on’.”

“We believe that the recipe for this is moving towards next-generation approaches to solving network problems. Those approaches typically have one thing in common and that is the cloud. The movement towards the cloud — towards a scaled-out service delivery architecture is the direction of travel for all market verticals in networking today.” 

As a result, Rahim says Juniper has “essentially doubled down” on the cloud, a trend that he sees as being especially relevant in the Middle East, where he counts outfits such as Jumeirah Group, Saudi Telecoms Company (STC) and the Higher Colleges of Technology as clients. The firm has 160 employees in the region, and while it does not break out regional performance results, Rahim says growth has been “robust”.

“Generally speaking, the economy here is quite healthy,” he says. “Certainly the effect of oil on the economy of Saudi Arabia — that can pose a challenge in terms of the investment that can happen and so forth. But we’re still — I guess — relatively small enough that we’re not really impacted by this. The total investable market is tremendous for us and the opportunity for us to grow is certainly there.”

Juniper’s business has a roughly 60/40 split between North America and the rest of the world, and as a result Rahim says that growth outside its home market is an area of focus. And while most CEOs have a fairly cautious — if not downright pessimistic — view about 2016, Juniper’s boss is pretty sanguine. 

“North America I feel very good about in terms of the economy, in terms of the appetite for telecoms operators and enterprises to invest,” he says. “Asia is a huge region and it really varies country by country. China, which is a huge market, is a tremendous opportunity. It’s a challenge, not just for Juniper, but for many international corporations that are trying to break into that market. But outside China, the growth is there and the growth is robust.”    

In recent times, Silicon Valley has been beset by activist investors seeking to amend corporate strategies to provide bigger returns to shareholders. Yahoo Inc CEO Marissa Meyer is under pressure from groups suggesting that the high-profile former Googler should be fired in the middle of her turnaround programme. Carl Icahn’s famous campaign to get Apple to use its colossal cash pile to buy back shares may have been good for investors, but won’t help the company long term. Just last week, chip maker Qualcomm announced that it would not split in two despite lobbying from Jana Partners.

Juniper has faced its own pressure in the form of hedge fund Elliott Management, run by the billionaire Paul Singer. Elliott made its move in January last year, having amassed a 6.2 percent stake in Juniper, and demanded that $3bn be returned to shareholders, along with a cost-cutting programme. Juniper bowed to pressure, and added two new directors to its board in February this year as part of a settlement with Elliott. When questioned about activist investors in the tech industry generally, Rahim says he can’t speak about the experience other firms have had, but from his perspective, the Elliott move had a positive outcome.

“There is nothing that the activist investors that had invested in Juniper did or influenced us to do that was not good for us,” he says. “At the end of the day, we believe that everything we did as a company, in terms of the restructuring, the cost cutting and the refocusing, was a plan that we came up with and executed by ourselves.

“At the end of the day, I am responsible for the strategy of this company. I am always going to be very open to suggestions and ideas from our shareholders, especially our large investors — and that includes activists, but it’s certainly not exclusive to activists. It was a good plan, and it resulted in some very real, key outcomes for us.”

As well as input from the likes of Elliott Management, reports in the media quoting unnamed sources have suggested that Juniper might be up for sale, or close to a partnership with a competitor. Rahim says that when it comes to M&A, he is only thinking of potential acquisitions that Juniper may make in the future.

“The goal again here is not to grow the scope of what we’re focusing on as a company. The market opportunity we serve today is close to $45bn, of which we have around 10 percent,” he points out. “Today we are focusing on a largely organic strategy to achieve our full potential. I believe there is room for us to make strategic acquisitions of companies that will complement our tech and accelerate, if you will, our ability to capture that opportunity.” 

At the same time, however, competition in the tech space is as tough as it’s ever been. In November, Ericsson — a company with which Juniper had previously had long-standing ties — announced a partnership with arch-rival Cisco, which some analysts suggested had left the smaller company out in the cold. Rahim insists that Juniper is “comfortable” about the level of competition, especially with regard to firms with a far bigger financial war chest.

“Certainly there will be alliances, there will be large companies that consolidate, there will be large companies that break up into other companies,” he says. “Selling products is not just about what you want to sell, it’s about what your customers want to buy. As long as we as a company can innovate in ways that find real values for our customers, I’m not concerned about finding the right path to the market.

“We have a large number of partners around the globe that will help us in taking the technology to our customers, and in all cases we — at least in the market verticals that we solve — have direct relationships with our customers.”

It seems that for every challenge, Rahim has an answer, and based on a strong performance in the first year of his tenure, Juniper’s future looks promising. Discussion over the company’s future — which will feature yet more diversity and the transition towards software away from hardware — also features a mention of the CEO’s favourite book; ‘Only The Paranoid Survive’ by legendary former Intel boss Andy Groves. The basic premise of the book is that only those firms that are constantly looking over their shoulders in a bid to spot the milestones (such as technology changes) will survive in the battle to win market share. For Rahim, who confesses that his primary concern is staying on top of industry trends and keeping Juniper’s competitive advantage, the choice is apt.

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