Published On: Mon, Dec 4th, 2017

ACG Research 3Q17 Vendor Financial Index: Four Vendors in Low-Risk Category

Solid revenue outlook, high operating margins and other factors put Adtran, Arista, Cisco and Juniper into low-risk category

ACG Research has released its 3Q 2017 Vendor Financial Index report, which delivers independent information about the sustainability of a vendor or company to help providers assess the risk of selecting the right vendor to meet their business requirements and to ascertain a risk level on the stability of the vendor regardless of technology innovations.

Low-risk vendors for the quarter are Adtran, Arista, Cisco and Juniper. Characteristics of low-risk vendors include strong revenue outlook, high operating margins because of sales, solid gross margin and expense discipline, low debt dependency, and high receivable efficiency ratio. Medium risk are Brocade, Ericsson, Fujitsu and Nokia. High-risk vendors are Adva, Ciena, Infinera and ZTE. Characteristics of high-risk vendors is an overall score between 8.9 to 10, calculated using 11 ratios and Z scores. 

Adtran’s revenue for 3Q17 was 9.6% YoY driven by its strong Network Solutions segment, Customer Devices category and a record performance in services revenues. Strong global demand for broadband bolstered Adtran’s market positions in U.S and Europe. A word of caution, this company has one of the lowest inventory turnover ratio (0.85) of vendors tracked. The company’s inventory increased 2% QoQ because of acquired inventory from acquisition of EPON and RFoG product lines.

Arista’s revenue increased 8% QoQ to $437.6 M. Strong demand for 100-gigabit routing and switching products, particularly from cloud providers, drove the growth in revenue. The company is focusing on three core segments: cloud class, cloud titans and cloud converged network to increase adoption of its new products. The company did report slightly lower cloud business this quarter related to long customer testing cycle and qualification time to comply with July ITC order.

Cisco’s revenue for next quarter is estimated at $11.8 billion. The launch of Cisco Intersight (management and automation platform) is expected to boost the company’s top line. Acquisitions of Springpath and Perspica will expand Cisco’s footprint in next-generation data center solution and machine learning. However, weakness in switching, routing and data center business may impact its profitability.

Juniper’s revenue was stable at $1.3 billion due to accelerated demand and adoption of Juniper’s Software-Defined Secure Network platforms. Additionally, its PTX product line continued to gain traction and achieved record revenue this quarter. Strong competition in the network equipment market from Arista Networks and Cisco Systems is a concern and could impact Juniper’s bottom line.

“The shift in spend by providers continues to affect the market. Total capex for both network and equipment is approximately 26% year to date,” says Ray Mota, CEO, ACG Research. “Although the industry continues to transform it is vital for providers to understand the sustainability and operational risk level of the vendors being deployed in networks. Innovation is critical but not at the risk of compromising sustainability. The vendors in the low-risk category are doing a much better job at balancing out the two.”

For more information about ACG Research’s Vendor Financial Index service or other syndicated and consulting services, contact sales@acgcc.com.