Investors bailed out on Juniper Networks Inc. today after the company warned that it may struggle to protect its profit margins in the coming quarter amid problems stemming from the global semiconductor shortage.

The networking firm actually delivered strong second-quarter results. It reported a profit before certain costs such as stock compensation of 43 cents per share on revenue of $1.17 billion, up 8% from a year ago.

That was better than expected, with analysts looking for earnings of just 39 cents per share on sales of $1.14 billion.

Juniper, which sells a mix of networking hardware and software products to enterprises, reported a net profit of $141 million for the quarter, up 21% from a year ago, showing good cost management.

Juniper Chief Executive Rami Rahim (pictured) told investors the company saw double-digit product revenue growth for the second quarter in a row, plus record product orders for the June quarter. “Our experience-first strategy is working, our teams are executing well and the investments we have made in our customer solutions and our sales organization are enabling us to capitalize on improving market-end conditions,” he said.

What struck investors though is not what happened, but what is likely to happen in the coming quarters. During a conference call, Juniper Chief Financial Officer Ken Miller told analysts the company continues to feel the impact of semiconductor supply constraints. That has led to an ongoing component shortage, he said.

The company posted an unusually long statement in its earnings release, saying that over the past quarter it managed to increase inventory levels by strengthening its supply chain. However, it said that even with those actions, extended lead times and elevated costs will likely persist for the next few quarters at least.

Hence, for the next quarter Juniper is guiding for revenue of approximately $1.2 billion, which would equate to earnings of 46 cents per share. That was more or less in line with Wall Street’s forecast of $1.18 billion in revenue and earnings of 46 cents per share.

“We expect our Q3’21 non-GAAP gross margin to decline sequentially due to higher costs related to supply constraints and an expected increase in service delivery costs, partially offset by benefits from higher revenue,” the statement continued. “We expect a modest sequential increase in Non-GAAP operating margin.”

Investors balked, and an initial gain was quickly wiped out as Juniper’s stock fell more than 6% in the extended trading session.

Holger Mueller, an analyst with Constellation Research Inc., told SiliconANGLE that Juniper had until now managed to offset the supply challenges it has faced due to the strong networking demands of COVID-19-afflicted economies. The problem, he said, is that demand is now slowing down.

“Juniper may feel the squeeze between supply chain costs rising and price-aware products,” he said. “The key challenge for its management is to protect profit margins and keep them at the 10% mark where they are now.”

Photo: SiliconANGLE