On January 30, Juniper Networks (NYSE: JNPR) announced their Q4 results with net revenues of $1,239.5 million, which is a decrease of 11% year-over-year and 1% sequentially. In addition, the Q4 GAAP operating margin was 16.4%, down from 20.7% in the fourth quarter of 2016, and a decrease from 18.4% in the third quarter of 2017.
Juniper has found out the hard way that the legacy router business is changing in exactly the way that Volta Networks has been saying:
“Juniper blames changing buying patterns by cloud providers for its precipitous drop in quarterly revenues. The reason for the slump: “This weakness is primarily being driven by a shift to a ‘scale out’ from a ‘scale up’ architecture, most notably at several of our largest cloud customers, which appear likely to persist through at least the coming quarter,” CEO Rami Rahim said on an earnings call Wednesday afternoon.”
This is a trend that is not going away, according to Jefferies & Company Inc. analyst George Notter “Contrary to the Juniper view, we suspect these trends won’t get resolved in the near term. More likely, these impacts seep into other customer verticals as well,” Notter says.
Legacy routers are constrained by how they deliver the control plane. The proprietary chassis-based router uses a routing engine to run the control plane software, which is both memory and processor intensive. As routers scale up with more and faster ports, the problem is that the routing engine memory and processing do not scale with it.
Moreover, it is very hard to virtualize the control plane. Node slicing is a good example of this. It requires the customer to run additional instances of the control plane on separate x86 servers.
This is not how virtualization works in the server and storage world. Virtualization gained traction because customers could take piece of powerful hardware and run multiple separate workloads as virtual machines. Legacy routers may be powerful (and expensive) but Juniper shows just how hard it is to run multiple instances of the control plane. Router vendors would rather talk about running their software as a VM on an x86 and call that virtualization.
It is not surprise then that open networking using low cost white box switches is quickly gaining traction. Volta’s Virtual Elastic Routing Engine (VERE) provides the ability to scale out the control plane for the white box switches by taking advantage of modern cloud based architecture. The result is that Volta can deliver true router virtualization while cutting the cost by as much as 80%.