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Juniper Networks Inc  (NYSE:JNPR)
Q1 2019 Earnings Call
April 25, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Juniper Networks' First Quarter 2019 Earnings Results Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I would now like to turn the conference over to your host, Jess Lubert, Vice President of Investor Relations. Mr. Lubert, you may begin.

Jess Lubert -- Vice President of Investor Relations

Thank you, operator. Good afternoon, and welcome to our first quarter 2019 conference call. Joining me today are Rami Rahim, Chief Executive Officer; and Ken Miller, Chief Financial Officer.

Today's call contains certain forward-looking statements based on our current expectations. These statements are subject to risks and uncertainties, and actual results might differ materially. This risks are discussed in our most recent 10-K, the press release and CFO Commentary furnished with our 8-K filed today and in our other SEC filings. Our forward-looking statements speak only as of today and Juniper undertakes no obligation to update any forward-looking statements.

Our discussion today will include non-GAAP financial results. Reconciliation information can be found on the Investor Relations section of our website under Financial Reports. Commentary on why we consider non-GAAP information a useful view of the company's financial results is included in today's press release.

Following our prepared remarks, we will take questions. (Operator Instructions) With that, I will now hand the call over to Rami.

Rami Rahim -- Chief Executive Officer

Thank you. Good afternoon, everyone. The March quarter played out largely as expected. Total revenue of $1,002,000,000 was above the midpoint of our guidance as we experienced slightly better-than-anticipated trends across each of our core verticals. Non-GAAP earnings per share of $0.26 came in above our guidance range due to better-than-expected sales, stronger gross margins, continued cost control and higher interest income, which together offset a higher-than-anticipated tax rate and share count.

We're pleased with the progress we experienced versus our forecast, however, we are not satisfied with our Q1 results and remain laser-focused on delivering a return to growth later this year. We believe we remain on track to achieve this objective and I'd like to walk through some of the items that are driving confidence in our ability to achieve this goal.

First, we are continuing to invest in our go-to-market organization, which underwent a restructuring and a change in leadership earlier this year. While changes such as these are never easy, and our actions created some anticipated headwinds, we saw improved momentum through the course of the quarter. Based on this momentum, I'm increasingly confident we have the right sales structure and strategy in place to win in the market. We are now in the process of adding sales headcount, which I believe should help accelerate our momentum through the course of the year.

Second, we are continuing to see healthy trends in our enterprise business. While this vertical was most impacted by the go-to-market disruption we experienced in the start of the year, enterprise still experienced 3% year-over-year growth in Q1. Normalizing for an unusually large financial services transaction a year ago, our run rate enterprise business grew double digits in the quarter, which we think highlights the underlying health of the business. We remain optimistic regarding the outlook for our enterprise business, which we believe is likely to see the greatest impact from our investment in incremental go-to-market headcount, as well as the recent acquisition of Mist Systems, which closed in the second quarter.

Third, and building upon this last point, we're very excited about the acquisition of Mist Systems, a pioneer in cloud-managed wireless networks powered by artificial intelligence. We believe Mist is truly disruptive technology and the early feedback from both customers and the field have been very positive. We are early in the process of integrating Mist into our go-to-market motion and educating the field on how to sell the company's products. While we do not expect Mist to generate material revenue during 2019, we believe the Mist portfolio positions Juniper to disrupt the $6 billion wireless LAN market and pull through sales of our campus switching solutions, which could positively impact our results later in the year.

Fourth, we are continuing to see success in our software business, which grew 8% year-over-year and accounted for more than 10% of revenue during the first quarter. This strength was driven by a combination of on-box and off-box offerings, with revenue from our Contrail family of SDN-enabled management and control software solutions increasing nearly 40% year-over-year. While our success may not be linear, we believe our software as a percentage of sales will continue to increase over time, especially as we introduce new products and new business models designed to better monetize the value of our offerings over the next few quarters.

Finally, we are continuing to see strength in our services business, which grew 3% year-over-year and accounted for 38% of our overall revenue. Our service team continues to execute well, driving strong services attach rates and renewals.

While not a surprise, we continue to experience weakness within the cloud and service provider verticals. Our cloud business remains challenged as several of our large customers continue to run their networks hotter and the pace of port deployments was not great enough to offset ASP declines. While this dynamic caused our cloud revenue to decelerate as expected during the March quarter, we were encouraged to see a pickup in orders toward the end of the period, which is providing confidence that momentum should improve over the next few quarters. Based on the capacity demand we are currently seeing, we remain confident we are holding our cloud footprint in the areas of the network where we have historically played. While we see the potential for improved product road in our existing footprint to drive a return to growth over time, new use cases will be needed to achieve our long-term model.

We are laser-focused on capturing this opportunity and view 400 gig as an inflection point that creates opportunities for wins later this year that should drive share gains in future periods. Our current product roadmap and strong customer relationships are driving confidence in our ability to secure these net new use cases in the cloud, particularly in the data center where we have little presence today.

Within the service provider vertical, we continue to experience headwinds tied to our customers' business model pressures and the expected timing of project deployments. While we believe our service provider business is likely to remain challenged during the June quarter, we do expect the vertical to experience better trends during the second half of the year. We believe our service provider relationships remain strong and with our new MX 5G line cards about to start shipping, the Ericsson relationship off to a good start and our Contrail Orchestration platform deeply entrenched at a number of global tier 1 service providers, we believe we are well positioned to capitalize on carrier 5G and telco cloud initiatives that are likely to start playing out later this year.

I think it's worth highlighting that we are in the early stages of launching several important new products that should strengthen our competitive position across our service provider, cloud and enterprise markets. Some of these anticipated products include: new MX 5G line cards that will enhance our 5G positioning and ability to capitalize on service provider capacity requirements; new QFX switches and PTX routing platforms designed to capitalize on customer 400 gig upgrades; enhanced Contrail Enterprise Multicloud software capabilities that break down the barriers of incumbency and make moving to a multivendor, multicloud today a reality with increased simplicity and reduced cost; new cloud-delivered enterprise capabilities that enhance our ability to penetrate enterprise campus and branch opportunities; and new silicon-photonics capabilities that potentially open new addressable market and enhance our competitive position during the 400 gig cycle.

We believe 5G, the 400 gig upgrade cycle, SD enterprise and enterprise multicloud initiatives each represent large multiyear opportunities where we should be well positioned to benefit over the next few years. Based on our current pipeline of opportunities, we expect to see normal seasonal trends during the June quarter. While we expect to see sequential growth through the remainder of the year and return to year-over-year growth during the fourth quarter, we do see the potential for seasonality to have some impact during the September quarter. Importantly, we remain confident in the long-term model we highlighted at our November 2018 Investor Day.

I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders.

I will now turn the call over to Ken who will discuss our quarterly financial results in more detail.

Ken Miller -- EVP, Chief Financial Officer

Thank you, Rami, and good afternoon, everyone. I will start by discussing our first quarter results and end with some color on our outlook.

First quarter revenue of $1,002,000,000 was above the midpoint of our guidance. In addition non-GAAP gross margin of 59.3% was toward the higher end of our guidance range. These results, along with prudent expense management and higher-than-anticipated other income, drove non-GAAP earnings per share of $0.26, above our guidance range.

Looking at revenue by vertical. Results were largely in line with our expectations. Enterprise increased 3% year-over-year. Sequentially, enterprise decreased to 20%, which is more than normal seasonality. As expected, our enterprise business was impacted by transitions in our go-to-market organization. Service Provider decreased 9% year-over-year and 16% sequentially due to weakness across all geographies. Cloud decreased 18% year-over-year and 6% sequentially. While cloud capacity continue to grow, the growth in units was not enough to offset expected ASP erosion.

From a technology perspective, Routing decreased 8% year-over-year and 16% sequentially. Switching decreased 23% year-over-year and sequentially. Security decreased 7% year-over-year and 35% sequentially. Our services business increased 3% year-over-year but decreased 5% sequentially. Software grew year-over-year and was greater than 10% of total revenue.

In reviewing our Top 10 customers for the quarter, 3 were cloud, 6 were service provider and 1 was an enterprise. Product deferred revenue was $140 million, down 12% year-over-year and down 3% sequentially. The year-over-year decline was due to the timing of the delivery of contractual commitments.

For the first quarter, non-GAAP gross margin was 59.3%. The stronger-than-expected non-GAAP gross margin was primarily due to lower service costs and increased software.

In the quarter, we had cash flow from operations of $159 million. The primary reason for the sequential decline was due to lower net income, partially offset by net changes in working capital.

We continue to execute our capital return program paying $66 million in dividends in the quarter, reflecting a quarterly dividend of $0.19 per share. Total cash, cash equivalents and investments at the end of the first quarter of 2019 was $3.5 billion. The sequential decline was primarily due to the repayment of our $350 million bond that matured in the quarter. We continue to focus on maintaining an efficient capital structure.

Before we move on to Q&A, I would like to provide you some color on our guidance, which you can find detailed in the CFO Commentary available on our website.

Our Q2 revenue outlook reflects normal seasonal trends. And while we expect revenue to grow on a sequential basis beyond the second quarter, we do expect to see some impact from seasonality in Q3. We expect to return to year-over-year growth in the fourth quarter. We remain confident in our long-term financial model that we outlined at our Investor Day in November of last year.

Full year non-GAAP gross margin is expected to improve directionally with revenue volume from Q1 '19 levels, and we believe gross margin for the year will be toward the midpoint of our long-term model. We plan to manage our operating expenses prudently, however, we expect the Mist Systems acquisition will be dilutive to earnings in 2019. Based on our current forecast, we expect non-GAAP operating expenses on a full year basis to be flat to slightly up versus 2018.

For the remainder of 2019, we expect our non-GAAP tax rate to be lower than Q1 '19 levels. We expect higher interest income compared to prior years due to favorable interest rates. Due to the impact of the acquisition of Mist Systems and a higher-than-anticipated tax rate, we expect non-GAAP earnings per share of $1.75 plus or minus $0.05 for 2019. If not for these items, our previous non-GAAP EPS guidance for the year would remain unchanged.

The accelerated share repurchase program, or ASR, initially planned for Q1 '19 was delayed due to the acquisition of Mist Systems. We now anticipate entering into an ASR for approximately $300 million this quarter, reflecting our continued conviction in our future prospects.

In closing, I would like to thank our team for their continued dedication and commitment to Juniper's success.

Now I'd like to open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Vijay Bhagavath, Deutsche Bank.Please proceed with your question.

Rami Rahim -- Chief Executive Officer

Hi, Vijay.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Yeah. Hi. My question is on the back half. Please help us understand 2 big product cycles out there, WiFi 6, 400 gig in the cloud. Are these weighted more toward the fourth quarter or we could see any actions starting around the September quarter?

Rami Rahim -- Chief Executive Officer

Thanks, Vijay. So there is, in fact, a number of different product cycles that we're expecting will help this year. I think it starts with just our routing portfolio, in particular, the MX 5G line card upgrades. We anticipate that those will ship this quarter. And typically, the ramp for a product like that where there's a large deployed base will start in the second half of the year. So that does feed into the confidence that we have in the second half. I've talked at length about the 400 gig pretty broad product transition that cuts across routing and switching. The main focus for 400 gig will be on wins this year that will feed into volume deployments and share next year. And then you mentioned wireless LAN, that's obviously a new and very important area of focus for us. There are a number of opportunities that we're seeing already in the early stages of integrating Mist into our portfolio.

And not just in terms of wireless LAN, but the -- it looks like our thesis for the pull-through effect of wireless LAN into other areas like security and switching is playing out as expected thus far. So I'm quite optimistic about that. And then the WiFi 6 standard that's going to be coming about, I think, starts to work its way into volume deployments, not -- probably the latter half of this year and into next year. So we're well equipped to capture that trend as well. But I do believe that even prior to that, we're going to see some good growth in that area.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Thanks Rami A quick follow-up for Ken, if I may. Ken, recently you mentioned about like staffing up sales headcount. How should we think about OpEx as percentage of revenue? And any dynamics on the product margin line heading into the back half?

Ken Miller -- EVP, Chief Financial Officer

Yes, so we did talk about full year OpEx for the year will be flat to slightly up. That is in the last call we talked about it being approximately flat. So I do expect it to be flat to slightly up. That is a slight change. That is predominantly due to the Mist acquisition, which as we mentioned on the Mist acquisition call a couple of months ago, it is going to be dilutive this year, the acquisition of Mist, but we do expect it to be accretive next year. So that OpEx is now in our forecast. In addition to that, I do -- we are investing a bit in sales. Now a lot of the sales investment is being fueled or funded by some of the transformation we've already done in sales. We've taken some cost out but we are putting more back in. So we will see a little bit of OpEx growth on the core market side as well. But overall, our OpEx as a percentage of revenue should improve as I expect revenue to grow sequentially much faster than OpEx.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Thank you.

Operator

Our next question comes from Jeffrey Kvaal, Nomura. Please proceed with your question.

Jeffrey Kvaal -- Nomura Securities Co -- Analyst

I guess I have a question and a clarification, if I could. I think first on the question, when should we start to hear about progress in 400? Are you going to be able to share that in the second half? And to what extent you have confidence that you'll be able to win on both the switching and potentially on the routing side as well?

Rami Rahim -- Chief Executive Officer

Yes. Thanks for the question, Jeff. So we're doing everything at this point. Right now, we're laser-focused on the 400 gig opportunity that is ahead of us. And there is obviously a big technology dimension to this. And across the entire technology stack, from our software capabilities, we've, as I've mentioned in the past, made some very meaningful modifications and enhancements to our operating system to provide modularity, the API programmability that our cloud customers want. We're working very closely with our big hyperscale cloud providers as well as the tier 2 worldwide cloud providers in meeting some of the specific requirements that they have, sometimes, for example, in terms of hosting third-party agents that are very important to their network deployments. We're also, I believe, based on what we know today, we have made exactly the right decisions in choosing merchant silicon technology for some parts or some layers of the data center network and our own custom silicon technology that I actually believe quite strongly that should give us some meaningful advantage and differentiation from a -- especially a cost performance and a power efficiency standpoint. And then, of course, there's the engagement. Right now, the engagement level with our large cloud provider customers is very high, engineer to engineer, and talking about specific opportunities, what's required to capture them. I have no doubt this is going to be a very competitive space, but I'm quite confident that we're doing everything that we can and we have a very competitive portfolio that will allow us to take share. In terms of when it will become visible, wins are rarely announced in the space. Our customers -- our cloud customers in particular tend to be somewhat quiet about this. But I do think if we start to secure layers of the network, in particular, data center interconnect and the data center itself, that will start to contribute meaningfully to revenue next year.

Jeffrey Kvaal -- Nomura Securities Co -- Analyst

Okay, perfect. And then my second, more a clarification. Do you feel like the changes in the enterprise go-to-market strategy are behind you now and we should get back to that low double-digit growth rate in the second quarter and to the balance of the year?

Rami Rahim -- Chief Executive Officer

Yes. So no doubt there was some disruption in Q1 as we had anticipated. And these changes are never easy. But honestly, I'm very happy that we went through them. I do believe that the hard part is behind us. I think we have a much more efficient sales organization right now. We removed layers. We increased span of control. We of course, changed leadership. And all of that, I believe, is going to result in better sales execution in the future. There's still, as we mentioned upfront, some hiring to do to fill some of the gaps we've created in the sales organization or the opportunities, I should say, in the sales organization where we're going to be primarily focusing on frontline's native quota-carrying sales representatives across all segments, but in particular in the enterprise segment. We'll be filling those opportunities throughout the rest of the year. And I'm very optimistic and in fact confident that this will start to help us in the second half of the year. So part of our confidence in the improved sequential performance of the company comes from the fact that we're investing now in sales that will help us in the second part of this year and certainly, into next year.

Jeffrey Kvaal -- Nomura Securities Co -- Analyst

Thank you, Rami.

Rami Rahim -- Chief Executive Officer

Thank you

Operator

Our next question comes from Ittai Kidron, Oppenheimer & Co. Please proceed with your question.

Ittai Kidron -- Oppenheimer & Co. Inc -- Analyst

Thanks. Hi guys, A couple for me. First, Rami, you've kind of laid out a very detailed new product roadmap here. It sounds like the next couple to 3 quarters are going to be very busy from a refresh cycle standpoint. I guess, how do I get my hands around the risks that are associated with the refresh in the context of potentially customers pausing ahead of a refresh. How are you accounting for that in your outlook for the year?

Rami Rahim -- Chief Executive Officer

Yes. We don't anticipate a lot of overhang or pausing in anticipation of new products that are coming. There's always some element of risk associated with that when you're introducing new products. But honestly, I don't believe that it's going to be a big factor. And certainly, we've weaved that or we have anticipated that in the outlook that we have provided.

Ittai Kidron -- Oppenheimer & Co. Inc -- Analyst

Okay, very good. And then with regards to Mist, Ken, can you be a little bit more specific with respect to the contribution of Mist in the June quarter? How much revenue do you expect this to deliver and perhaps, how was -- how big is the headcount that you've added with this acquisition?

Ken Miller -- EVP, Chief Financial Officer

Yes, so we've mentioned previously that we do expect it to be dilutive for this year and accretive next. All of the OpEx we take on day 1 and they're still in ramp mode for revenue, obviously. They have fairly immaterial amounts of revenue, and we baked in fairly immaterial amounts into this calendar year. That said, they're growing quite nicely and we do see it as a very strategic opportunity to insert into net new customers. But from a revenue perspective, particularly Q2 revenue, it's quite immaterial, but we should start to ramp from there.

Ittai Kidron -- Oppenheimer & Co. Inc -- Analyst

Rami, when you look at Mist, how quickly do you think they get fully incorporated into your sales cycle? Are they going to be kept separate from a sales standpoint or mandated to sell Juniper gear as well? Help me think about that.

Rami Rahim -- Chief Executive Officer

Yes, so we are largely keeping Mist as a stand-alone entity within the company with the goal of ensuring that the momentum that they've seen over the last couple of years not only continues but accelerates. We're focusing primarily now on educating and enabling our broad sales organization to be able to sell the technology. And we're keeping the Mist sales team as a stand-alone specialist team that can go after net new wireless LAN opportunity. And like I said earlier, so far, we're seeing that it's become a great door opener for us in net new accounts where we have an opportunity to sell more of the portfolio in addition, of course, to wireless LAN. Now over time, there will be more technical integration. But honestly, we're being cautious, careful and taking our time. As you might have seen, we announced not too long ago a software-defined enterprise offering that cuts across SD-WAN, SD security, SD switching. And we have done some integration with Mist already to provide a holistic solution for enterprise customers. And thus far, the reception from customers although it's early has been really encouraging.

Ittai Kidron -- Oppenheimer & Co. Inc -- Analyst

Very good. Good luck guys.

Operator

Our next question comes from Simon Leopold, Raymond James. Please proceed with your question

Simon Leopold -- Raymond James -- Analyst

Thanks for taking the question. I wanted to first touch on sort of trying to understand product mix versus vertical mix in that I would expect that routing would tend to be stronger in service provider and cloud and less strong in the enterprise group, yet the vertical mix sort of moved in the wrong direction in terms of relative to what I'd expect on product mix. Could you help me sort of think about the correlation between your product groups and your verticals? And I have a follow-up.

Rami Rahim -- Chief Executive Officer

Sure. So yes, I mean you're right that SP is predominantly routing. We talked about that at Analyst Day. I want to say 80% plus of our service provider business is routing. Cloud is -- majority is routing, but Switching actually has a bigger share than it does in, say, Service Provider. But still, the majority of our Cloud business has been routing. It's always been that case -- that way. Within enterprise, it's predominantly Switching and Security and -- but we have a very -- over the last several quarters, we've been actually growing our routing business, albeit it's still the third in rank order of technologies into that vertical.

Simon Leopold -- Raymond James -- Analyst

So can you explain this quarter -- because the movement was the opposite. Routing got better but Service Provider and cloud are weak and enterprise was strong. So that's where I'm confused.

Rami Rahim -- Chief Executive Officer

I mean all verticals were down and all technologies were down sequentially. And I think your better comment is more about tempering of growth rates. But...

Ken Miller -- EVP, Chief Financial Officer

On a year-on-year basis, we did see Routing down 8 and Service Provider down 9, and they're pretty highly correlated. Enterprise was the 1 vertical that grew on a year-on-year basis, and the 1 technology that grew within enterprise -- actually 2 technologies, Routing and a little bit of Security growth within enterprise. Switching was down in enterprise.

Rami Rahim -- Chief Executive Officer

So much of the newer routing products that we have introduced over the last year have been really optimized for net new footprint where we have not really participated in the past in the enterprise space. So products like the MX10003, the MX204 have been very well received by the enterprise market.

Simon Leopold -- Raymond James -- Analyst

That's helpful, Rami. So just to follow up. I wanted to get a perspective of you in terms of your longer-term vision on your silicon-photonics products that you discussed at the optical trade show in March. So I understand you're really just getting started. But we've sized the market for data center transceivers at maybe $15-kind-of-plus billion for 100 gig. I just want to get your sense of where you think you can take that particular business as you grow it.

Rami Rahim -- Chief Executive Officer

Yes. I appreciate the question. So we remain optimistic, excited about the silicon-photonics opportunity. I mean the fact of the matter is there's a large part of the network investment that happens via our customers that's not in the network elements themselves but it's in the interconnect between networking elements. We've always looked at the 100 gig cycle as an opportunity to learn. Because the 100 gig cycle, as you know, is very mature right now. There are a number of offerings that are in the market right now. Pricing is already quite competitive. And we are doing just that from 100 gig. We have run into some challenges with our 100 gig silicon-photonics efforts, not in the core technology, but in the assembly level 400 gig. And those -- the lessons from that are all feeding their way into 400 gig, and we've decided basically we're going to emphasize or put most of our energy and attention on getting 400 gig. And the bull for 400 gig will be to release 400 gig optics using our core very differentiated IP technology right at the beginning of the volume deployment for 100 gig. So as whereas we had anticipated shipping 100 gig products in the first half of the year, I would say that's not going to happen. But we're on track to deliver the 400 gig products where I believe the opportunity to truly differentiate from an economic standpoint in time for the volume ramp.

Simon Leopold -- Raymond James -- Analyst

And you think that's maybe the turn of the calendar year?

Rami Rahim -- Chief Executive Officer

It's around that time frame, yes.

Simon Leopold -- Raymond James -- Analyst

Great. Thank you very much for that. Helpful.

Rami Rahim -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Paul Silverstein, Cowen. Please proceed with your question.

Paul Silverstein -- Cowen -- Analyst

Thanks Ken, did I hear you correctly that you expect gross margin to hit the midpoint of your 58% to 62% fiscal '19 through '21 guidance this year? Was that the comment?

Ken Miller -- EVP, Chief Financial Officer

Yes. So for full year FY '19, I expect margin to be approximately at the midpoint, which is 60%.

Paul Silverstein -- Cowen -- Analyst

And can you discuss the visibility and the opportunities and risks to getting there? And I recognize it's a journey and there's still a ways to go, but can you talk about the ability to get to the higher end of that 58% to 62% range, what it will take and what time frame?

Ken Miller -- EVP, Chief Financial Officer

Yes, so to get to the higher end, it really comes down to mix. And most of it is product mix. That drives our margin more than anything. In addition, between now and the end of this year, volume will definitely play a factor in a positive way. So as we gain more volume, it helps our fixed cost-to-variable cost ratio, so that improves margin quite significantly as you ramp up throughout the year. But going forward, long-term, the answer is predominantly in mix. You're seeing more software sales is obviously a positive. And then having the value engineering that we've been doing, the design for value efforts we've been doing across all of our platforms, we talked a lot about 400 gig, just as an example, those platforms, we believe, are going to have a better cost performance than our previous generation routing and switching lineups. So we should see improvements on a kind of like to like product. But more significantly mix, mix is the biggest factor moving forward.

Paul Silverstein -- Cowen -- Analyst

And Ken, any change in pricing dynamics in the marketplace?

Ken Miller -- EVP, Chief Financial Officer

Well, we definitely have the pricing ASP erosion built into our long-term model. We're presuming those are going to be normal kind of trends. There's nothing that we're expecting beyond the kind of typical cost per bit kind of price erosion.

Paul Silverstein -- Cowen -- Analyst

No accelerations?

Ken Miller -- EVP, Chief Financial Officer

No.

Paul Silverstein -- Cowen -- Analyst

Great. I appreciate. Thanks guys.

Rami Rahim -- Chief Executive Officer

Thanks,

Operator

Our next question comes from Thejeswi Venkatesh, UBS. Please proceed with your question.

Tejas Venkatesh -- UBS -- Analyst

Thank you.You talked about improved cloud orders toward the end of the quarter, and you're making incremental sales investments into the enterprise. So I wonder how might you rank order the incremental growth opportunities by vertical over the next 1 to 2 years. You did lay out detailed markets at Analyst Day but a lot has changed since then.

Rami Rahim -- Chief Executive Officer

Yes. Thanks for the question. So in terms of cloud, I think this is going to be a year of stability. Basically, last year as you know was a tough year where we saw some meaningful declines as a result of the product transition. This year, I think we can say that the bulk of that product transition is behind us. And we are in stability and rebuild mode off of a -- the base that we have created for ourselves now coming into this year. I remain optimistic that we have retained our footprint. We have done everything that is within our control and power to ensure that we are very relevant within our hyperscale cloud and our broader cloud customers. And I've talked at length about the technology that we have been working on we'll introduce into the market to see growth from here. And with the addition of net new footprint, I believe that the long-term model that we provided in our analyst event in November of last year is certainly within our grasp. As far as the other 2 verticals, as you know in the SP space, we anticipate that there's going to be -- it's going to remain a dynamic environment. Our service provider customers are dealing with business model challenges of their own.

And so for that reason, our longer-term outlook, our long-term model, has been slight declines in SP. I do believe that there are catalysts that could improve things in the future. We're just not baking that into our model at this point. Things like 5G, our telco cloud transformation efforts, where we're essentially now building a new muscle and a motion in the SP space to help them transform their central offices into essentially service -- next-generation highly automated service delivery engine. And the way we monetize that is not just through boxes but by selling software, in particular, our Contrail software suite. And enterprise is where I believe we should see growth this year. Despite the fact that we lost the momentum in the Q1 period, primarily because of the changes that we made in the go-to-market organization, I believe that the market opportunity remains healthy. There is a lot of growth potential for us across both the data center as well as the campus environment. We, as you know, have made now investments, including M&A, in Mist Systems that I believe gives us a really compelling portfolio. So I'm actually quite bullish on the growth for the enterprise all of this year.

Tejas Venkatesh -- UBS -- Analyst

And as a follow-up, revenue this year will be similar to 2011. Now I know you're making organic investments and you've acquired Mist. But I wonder if there's been any additional thinking on M&A and what other parts of the portfolio you might want to round out? And is that why you've inked this $500 million credit revolver?

Rami Rahim -- Chief Executive Officer

Yes. In terms of M&A, I would say that if you look at what we did with Mist Systems, it's a good example of the kinds of what I would say really value-creating M&A opportunities that we would pursue to accelerate a strategy that we were already embarking on. Now we have seen now for 2 years solid year-over-year growth in the enterprise space. We believe that the shift in the enterprise toward cloud delivered SaaS software-based offerings is creating net new opportunities. In fact, leveling the playing field whereas in the past it was much more difficult to compete. We have our own organic efforts that we have put into the market that have helped us in achieving the momentum thus far. And we look to inorganic ideas like Mist Systems that can only accelerate the pace of growth. And that's a wonderful example of what we would be thinking about going forward as well.

Ken Miller -- EVP, Chief Financial Officer

Yes. And I would -- on the credit revolver side, I would urge you not read too much into that. That's just really a timing situation. We had a revolver before, has a 5-year life. It expires. We reupped for another 5 years effectively. This, I just think, is good hygiene. It's a low-cost access to quick cash if needed. We have never drawn against our revolver in the past. At this point, I don't anticipate having to draw against this one either. It's just nice to have as a backstop.

Tejas Venkatesh -- UBS -- Analyst

Thank you very much.

Operator

Our next question comes from Rod Hall, Goldman Sachs. Please proceed with your question.

Rod Hall -- Goldman Sachs -- Analyst

Yes hi guys thanks for the question.I guess I want to come back to this OpEx issue and the fact that 100 gig is -- doesn't sound like it's going to be available in Q2. But it's only -- I mean that's less than 2 months since I guess you guys talked about silicon-photonics in OFC. And -- so I wonder when did you determine that it wasn't going to be available? And then I also want to clarify whether are you saying that you'll still deliver 100 gig in about the same time as 400 gig or are you skipping this? Can just clarify what the roadmap now looks like with respect to those different speed technologies?

Rami Rahim -- Chief Executive Officer

Yes, Rod, thanks for the question. I'm happy to clarify. So we've always thought about 100 gig as an opportunity for us to essentially flush out the technology, prove that the core technology works, and then really make meaningful progress in terms of market share capture and differentiating our products in the 400 gig cycle, primarily because 100 gig has been -- it's already a very mature market today. In terms of timing of the assembly issues, it's very recent. And we'll make the decision on 100 gig later this year. We're certainly happy to keep you posted on that. But again, I want to emphasize the fact that we've always thought that 400 gig is where the opportunity largely lies. And I do believe that we'll be able to capture that opportunity at the beginning of volume ramps, which is really around the beginning of next year.

Rod Hall -- Goldman Sachs -- Analyst

Okay. And then I just wanted to just -- this is more of a clarification, but just as I look at the revenue trajectory, you guys are saying seasonality in Q3 but the last couple of years, seasonality has been down quarter-over-quarter. So I'm assuming you're saying up a little bit, like, low-single digits in Q3. But if that's the case, then your Q4, to get to year-over-year growth, you've got to be up $50 million, $100 million, not maybe quite that much but at least $50 million sequentially. And that's a pretty good-sized quantum of revenue that you've got to achieve in the fourth quarter. And I just wonder, it sounds like you feel pretty confident on the MX 5G line cards. But how much visibility do you have there and why you have confidence you can get to growth in December?

Ken Miller -- EVP, Chief Financial Officer

Let me talk about the seasonality and then I'll let Rami if he want to touch on the confidence in Q4. But -- so first, I'll start off with this year is largely playing out as we expected including the second half. We've been calling for improved second half trends throughout the whole year. And historically, it's important to note that Q2 and Q4 are typically our strongest quarter season from a sequential perspective. Q1 and Q3 have been challenged. To your point, the last couple of years, Q3 has been kind of flattish. We do expect to be better than flat. We expect some sequential growth in Q3. But I think about 3% is a good kind of expectation for Q3, about 3% sequential growth, which would be better than historical seasonal, but kind of not as robust as Q2 and Q4. We expect those to be stronger sequential quarters for us.

Rami Rahim -- Chief Executive Officer

Yes, as far as the qualitative assessment of the second half, I would say there are a number of things that give us some confidence. First is we do have visibility into timing of build-outs. In the SP space in particular, but also in the enterprise and the cloud. A big part of the sales transformation that we embarked on in the Q4 and Q1 has been around improving our forecasting rigor. And I think we're going to start to see more of that benefit as we go -- as this year plays out. It's already, I believe, helped us. Second, I mentioned that coming out of Q1, we were encouraged by the momentum. Relative to when and how the quarter started. That, I think, feeds into our confidence.

The sales investment. We've essentially, through the tough decisions and actions that we've made, created the opportunity for us to invest in sales. And I think that the product pipeline supports that investment. And then, yes, the innovation. Both the organic innovation, MX 5G, our software enhancements that we've made across all of our products really, especially in terms of management and simplicity of our switching and our security assets. And then last but not least is our inorganic efforts with Mist that I think start to help in the latter part of the year as well.

Rod Hall -- Goldman Sachs -- Analyst

Okay great. Thank you guys.

Operator

Our next question comes from Samik Chatterjee, JPMorgan. Please proceed with your question.

Samik Chatterjee -- JP Morgan -- Analyst

I just wanted to start off with the security business. Can you just help me understand the lumpiness you're seeing there. You had a good quarter in 4Q and then 1Q, you had a softer quarter. Can you just help us understand the lumpiness there. And can you also talk about kind of what you're seeing in terms of discussions with some of the service providers relative to your security portfolio?

Rami Rahim -- Chief Executive Officer

Yes, happy to address that. So security, we certainly lost some momentum in the Q1 period. Now a big part of that was the fact that there is a component of our Security business that's very lumpy because it's essentially captured or it's a product that's sold to large customers in the cloud and service provider space. So whereas we have healthy cloud and SP spending in the Q4 period, we just had much less of that in the Q1 period. There's no good reason other than just timing of deployment. Despite the fact that I do believe the sales transition had an impact, we actually saw Security grow on year-over-year basis in the enterprise space. So I think that momentum has continued.

Looking forward for Security, I think that the investments in go-to-market is going to help, especially that on the enterprise side. In terms of the portfolio, we recently introduced the -- or had significantly enhanced the high end of our Security portfolio. And we're seeing a lot of interest, especially in cloud and service provider, as well as some large enterprises like financial services and banking, in that product line. Now many of the interest today shows up in terms of proof of concept testing, validation of features, et cetera. And that has a good potential of translating to sales and revenue in the out quarters. And the last thing I want say about Security is we've really now integrated Security into our solutions, our enterprise-focused, service provider-focused solutions. So if you take for example our software-defined enterprise offering that includes wireless LAN, now that includes switching, it also includes Security with a single pane of glass, very simple, management interface that very much appeals to the enterprise market. We're thinking about Security as a component of a portfolio sale increasingly. And that has worked for us in the past and I think it's going to work for us going forward.

Samik Chatterjee -- JP Morgan -- Analyst

Got it. Can I quickly ask for an update on at the Investor Day you had talked about rolling out subscription offerings in different tiers. And can I just ask for an update where you stand relative to that? Is it something that's coming through in the remainder of the year or ramping up kind of as we go through kind of the remaining quarters here?

Rami Rahim -- Chief Executive Officer

Yes, thanks for the question. So we did see good year-over-year growth in security -- sorry, in software. And as we mentioned, software is starting to contribute an increasingly significant portion of total revenue for the company. This is very much a part of the strategy that we have been executing on for the last couple of years. It cuts across both on-box software offerings as well as off-box offerings. You're right. We presented to you at the November Analyst Day a very simple, uniform business model around software for all of our products that we introduce into the market starting this year. And as an example of that, the MX 5G products that will be shipped this quarter will adhere to that new simple model. It will have a base perpetual component. And then the opportunity to up-sell into additional features and value using subscription models. So I expect that all of this effort, the energy, that the simplicity of the model that we've introduced is going to actually help us achieve our long-term projections for Security -- or Switching as a component of sales, which is at 16% by 2021.

Samik Chatterjee -- JP Morgan -- Analyst

Okay Great. Thanks for the update. Thank you.

Operator

Our next question comes from George Notter, Jefferies. Please proceed with your question.

George Notter -- Jefferies -- Analyst

Hi, guys. Thanks very much.I wanted to ask about the cloud business. If we go back over the last few quarters, we've had lots of conversations about the MX, the PTX transition. And obviously, if I go back, that was a big source of erosion in terms of the price realization per gig that you were getting. And we got the impression that you guys were through the meat of that transition. But if I look at the financials here, I mean we're still seeing down I think 18% year-on-year. It seems like -- and you're saying there's capacity growth among that customer set. So it feels like we're still getting pretty significant erosion here. I guess I was trying to understand exactly what the dynamic is.

Rami Rahim -- Chief Executive Officer

Yes, so you're right in that the bulk of that transition, the product transition, is behind us at this point. We're not entirely through it but we're mostly through it at this point. I think the bigger impact right now is really around the pace and the timing of deployments. And I -- as painful as the product transition was, I'd do it all over again because it has resulted in us now holding the footprint that's so important for us that will eventually translate to growth and will give us the opportunity to sell into net new footprint. What I look at -- when I look at the cloud space, even though the CapEx spending might moderate, I look at the businesses of our cloud customers.

And across the board, you see that they are all crushing it. They're doing amazing things with their businesses. And as a result of that, they will need to continue to invest in their networks. I think that eventually helps us in the routing space where we have the strength. And it's exceptionally important for us to grow into net new footprint, which we're doing, as I mentioned, everything we need to do from a technology and an engagement standpoint that will enable us to grow going forward. The last thing I'll just mention is exiting the Q1 period, we did see a pickup in momentum that has fed into our confidence that we should see sequential improvements from this Q1 low.

Operator

Our next question comes from Tal Liani, Bank of America. Our next question comes from James Faucette, Morgan Stanley. Please proceed with your question.

James Faucette -- Morgan Stanley -- Analyst

I wanted to ask really quickly on Mist. We've heard some positive feedback on from channel partners, et cetera, on that product. And you've talked about, like, hopefully being able to pull that through or use that to pull-through other Juniper products into the enterprise, et cetera. Can you -- I know you're not expecting revenue directly from Mist to contribute much this year but really ramp in 2020. But can you talk about like what the time to, I guess, training and productivity and how we should think about starting to see evidence of the Mist traction and how it can help the rest of the portfolio.

Rami Rahim -- Chief Executive Officer

Yes, thanks for the question, James. So first, I will reemphasize that I truly believe that Mist is very unique technology in the industry that brings to bear their AI capabilities, the cloud management, superior visibility and very importantly, the scale to capture very large enterprise customers that other solutions that are cloud-managed just simply don't have the capability of doing. We're already in the middle of training our broad sales team worldwide to understand how to articulate the value proposition of the product. I personally have been involved in many of the early customer conversations and have heard, firsthand, the excitement from those customers.

And I have seen, again firsthand, how Mist can be used as a door opener that gives us the opportunity to position other products. So not meaningful from a revenue standpoint in the Q2 period. I do believe that it starts to be meaningful based on net new footprint, based on the capability of our broad sales team to position the technology in the latter part of this year and certainly, I believe it becomes now accretive to us next year.

Ken Miller -- EVP, Chief Financial Officer

And I think it's important to note that -- I mean Mist is sold with the hardware as well as the software delivered from the cloud. So that software also is going to be recognized ratably over a period of time. So although the bookings and the wins will start to come sooner rather than later, the revenue will be drawn out a bit, which is in line with our long-term kind of software subscription model.

James Faucette -- Morgan Stanley -- Analyst

Got it. That's helpful. Ken, just a follow-up question. Normally I hate to kind of parse guidance in language. But I just want to understand is that in the first quarter, you posted $0.05 of EPS upside. You're saying, excluding the impact of taxes and the Mist acquisition, that your EPS guidance will remain unchanged for the year. And it seems like, at least where you're pointing people for revenue, at least for the third quarter, is a little bit below where The Street is. So I'm just wondering where those Deltas, like why they're emerging and what's different maybe than perhaps how, at the very least, The Street had things modeled and kind of what's making for those small changes, if you will?

Ken Miller -- EVP, Chief Financial Officer

Yes, I would say kind of at the highest level, revenue is largely in line with what we expected for the full year. I mean I do think Q3 -- I already mentioned I think bringing that growth rate to 3% makes more sense to me given the seasonality we normally see in Q3 as a tough quarter for us. But the upside in Q1 somewhat offsets any of the model there. So I think the full year is largely in line. The biggest change of the year is going to be OpEx. OpEx, I do think, will be flat to slightly up whereas before we're talking approximately flat plus or minus. So are now thinking flat plus. And that's largely...

James Faucette -- Morgan Stanley -- Analyst

Right. And just -- sorry, just to make it clear, so it's a flat -- it's flat to slightly up plus Mist or because of Mist acquisition?

Ken Miller -- EVP, Chief Financial Officer

Because of Mist. Because of Mist. Because of Mist. And that's now Juniper. So that's now baked into our full year OpEx expectation. The other thing I would mention is attach rate I do think is going to trend up from last year's levels. It should improve from Q1. Attach rate will be a bit of a headwind. Last but not least, the ASR timing was pushed from -- we expect to do that in Q1, now it's going to be done in Q2, we expect. We do have some favorableness on the other income line due to interest rate improvement. But those are kind of the puts and takes to the full year EPS guidance.

James Faucette -- Morgan Stanley -- Analyst

That's great. Thank you so much for that.

Rami Rahim -- Chief Executive Officer

Sure.

Operator

Our next question comes from Sami Badri, Credit Suisse. Please proceed with your question.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Hi. Thank you.My question really pertains to Juniper legacy, ex Mist networks or Mist Systems. And more specifically, if I look at your customer revenue mixes across enterprise, telecom and cable and cloud, and from 1Q 2018 to 4Q '18, you did have a year-over-year ramp in your revenue growth rate. And as we think about 2019, excluding Mist, do you expect to see a very similar type of ramp going into 2019 as we saw on 2018 mainly driven by enterprises. And maybe I have a follow-up after that.

Rami Rahim -- Chief Executive Officer

Yes, so we absolutely expect sequential growth in revenue throughout this year. Mist, it will be a factor but not the reason. I mean Mist will be relatively immaterial to the grand scheme of kind of Juniper's size and scale from a revenue perspective. But it should grow as well but it won't be the driver of the overall growth for Juniper. We expect sequential growth. Enterprise is the 1 vertical that we expect full year growth year-on-year and we expect that momentum to continue and actually accelerate as we kind of move through the sales force transition that we were kind of in the middle of exiting and moving onto more productivity as we hire more sales folks. Cloud and SP, we also expect sequential growth off of Q1 levels and actually off of the Q2 guide, we expect sequential growth.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it. And just to be clear this is all excluding -- this is excluding Mist throughout this ramp, right, the enterprise commentary?

Ken Miller -- EVP, Chief Financial Officer

Correct. Yes, yes. We view Mist as an accelerator obviously. I mean we think Mist will accelerate our enterprise plan. But we had an organic plan, without Mist, we did believe we would grow enterprise.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it, thank you. The other follow-up I really have is regarding Mist and dilution. Now based on all the numbers I've actually come about, I guess the dilution dynamic is between $0.05 and $0.15 of dilution from the acquisition. I know you guys can't give us a tangible number, but are we on the higher end of this range or in the lower end of this range?

Ken Miller -- EVP, Chief Financial Officer

So the guide that we gave up prior to Mist was $1.80, plus or minus $0.05, and I've revised that to $1.75 plus or minus $0.05. So about $0.05 is the guide down and that encompasses Mist as well as some tax rate adjustment somewhat offset by interest income.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it. And then just this is kind of more thinking like afar just given the announcement of Mist and as Contrail progresses. But what would you anticipate the software revenue mix of total revenue is probably a year out from today just given there are a lot of moving pieces and changes occurring in the model today, when it kick off 2020, what would be a reasonable mix to assume or to shoot for in the model? Just from software?

Ken Miller -- EVP, Chief Financial Officer

Yes, so we have the target of 16% for 2021. I expect us to directionally grow toward that between now and there. It's not going to be perfectly linear, but I think from a forecasting perspective, some sort of linear progression between here and there, would be probably the best model.

Rami Rahim -- Chief Executive Officer

Operator, we're going to take one more question.

Operator

Our next question comes from Jim Suva, Citi. Please proceed with your question.

Jim Suva -- Citi. -- Analyst

Thanks very much Anyway, regarding your commentary at the beginning, you mentioned customers are sweating their assets. Typically, when that happens, there's a certain duration then they absolutely have to come back and they come back feasting and indulging themselves on purchasing orders. Or something has structurally changed, like some type of data compression or some type of optimization programs or something. Can you help us understand, is that true in this situation from where you sit and see? Or has something changed? Because at some point the sweating cannot continue with the heated assets.

Rami Rahim -- Chief Executive Officer

Yes, still, I believe you're referring to the commentary we made around the cloud customers essentially running their networks a little hotter. And like I said earlier, when I look at the business performance of our cloud customers, they can't achieve that performance on a continuous basis and deliver the kind of experience that's so important for them to their customers without investing in their networks. So I -- even if spending moderate, I do believe that this remains an incredible opportunity for us.

And this is why we're investing in it. So yes, my belief is cloud is in fact a growth opportunity for Juniper. There might be some ebbs and flows in the business based on deployment cycles. But network investment is going to be required. And we're ready to capture that investment with the footprint that we have, as well as the -- all the effort that we're making to capture net new footprint.

Jim Suva -- Citi. -- Analyst

But when do you think that will happen? I mean at some point -- I mean they're just killing it with their trends and so it seems like it's got to be sooner or am I wrong with that because your outlook doesn't look like it's coming pretty quick.

Rami Rahim -- Chief Executive Officer

Yes, I think last year, we saw a meaningful decline. This year, I think we get to stability. And then next year, I think we can start to get to growth. And I believe that the long-term model that we provided for cloud, which is growth, is absolutely in the cards, especially as we capture net new footprint and new cloud customers worldwide.

Operator

We have reached the end of the question-and-answer session. I will now turn the call back over to Jess Lubert for closing remarks.

Jess Lubert -- Vice President of Investor Relations

Thank you, everyone, for your questions. We look forward to speaking and meeting with you during the quarter.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 61 minutes

Call participants:

Jess Lubert -- Vice President of Investor Relations

Rami Rahim -- Chief Executive Officer

Ken Miller -- EVP, Chief Financial Officer

Vijay Bhagavath -- Deutsche Bank -- Analyst

Jeffrey Kvaal -- Nomura Securities Co -- Analyst

Ittai Kidron -- Oppenheimer & Co. Inc -- Analyst

Simon Leopold -- Raymond James -- Analyst

Paul Silverstein -- Cowen -- Analyst

Tejas Venkatesh -- UBS -- Analyst

Rod Hall -- Goldman Sachs -- Analyst

Samik Chatterjee -- JP Morgan -- Analyst

George Notter -- Jefferies -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Ahmed Sami Badri -- Credit Suisse -- Analyst

Jim Suva -- Citi. -- Analyst

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