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|Juniper networks 2012 financial analyst meeting||Why is -- why do I think so? We feel very -- we feel like we've got an incredible product portfolio that includes some very strong products like the Juniprr and the T Series that have been with us for a number of years. And then stitching that together in a way where we are really driving towards a set of outcomes, and those outcomes have to be driving the revenue growth, has to be measured in revenue growth, meetjng satisfaction and productivity. We've systematically focused on how we innovate in the silicon, the systems, the software to more info take that portfolio and here a range of solutions, all in the domain of high-performance networking, that can solve unique problems for customers. And certainly as we networs that out, there are new opportunities that we can address with this new product, all the while staying focused on the very-high-performance gig data centers that we think will make up the future of what data centers and clouds will be. It turns out that the goals are exactly the same, completely identical. Well, today that MX product has been expanded in a way that it also serves the wide area networkks needs of the enterprise.|
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|Caresource insurance through state of ohio used for rehabs in other states||Juniper networks 2012 financial analyst meeting think as we look at the market, looking at that high-performance part of the market, there are many parts of the market that commoditized before we started talking about SDN, and there link many parts that will continue to commoditize. And they, of course, have very large data centers with, effectively, a private network connecting them. That's great. This end-to-end solution uses both the ACX as well as the MX and gets managed both from a network management point of view as well as a service creation point of view by Junos Space. And meetng 4 principles just click for source centralize what you can, distribute what you must. Is it the high-performance area that you're winning?|
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Cash flow was up sequentially, reflecting higher earnings and good working capital performance. DSO was 34 days in the quarter, down from 39 days last quarter and in the second quarter of last year.
Capital expenditures and depreciation were up slightly from the prior quarter as we continue to build out our Sunnyvale campus. Now I will review our outlook for the third quarter. And as a reminder, these metrics are provided on a non-GAAP basis except for revenue and share count. Looking ahead, we expect customers to remain cautious.
We anticipate ongoing weakness in EMEA through the balance of the year, and that Enterprise markets globally will continue to invest carefully. We are making good progress on our new product introductions, and we remain focused on driving revenue growth and disciplined operational execution. Gross margins are expected to be roughly flat sequentially at the high end of the revenue range. Given the current market, we intend to be more opportunistic in the near term.
Obviously, we will calibrate our buybacks in future quarters with market conditions at the time. But based on current trends, we clearly recognize the opportunity to do more.
The second update is around our productivity and efficiency initiatives. As I outlined at FAM, actions are currently underway that will reduce ongoing operating expenses. In summary, given our view of the challenging near-term market conditions, we will continue to execute with agility and flexibility, while balancing the long-term needs of the business to deliver innovation and revenue growth.
I would like to thank our dedicated employees for their hard work and commitment. They continue to be key to our success in delivering the new network. And now, I will hand it over to the operator for questions. Question-and-Answer Session.
I actually have a couple. Kevin, just a clarification. When you're talking about wireless and a lot of opportunities you're getting in wireless, you didn't mention MobileNext so I was wondering if that was kind of a -- just a slip-up or intentionally that wasn't really maybe the emphasis on MobileNext. So that was just kind of a clarification. Robyn, you're talking about the gross margin mix, and you said that routing was a positive driver of gross margin, but then was offset by a negative gross margin mix in switching.
I'm wondering, is that negative gross margin based on switching mix? In switching, it's hard to say, due to the entry of QFabric into the switching mix. And if so, can you give us a sense as to how large QFabric was and what you expect that to be in the next quarter and going forward and give us a sense as to how that grows?
And if it doesn't, that gross margin [indiscernible]? Thanks for your question, Ehud, I'll take the first question on MobileNext. Certainly, MobileNext, we've made a lot of progress on MobileNext from a feature capability standpoint. And the key enabler that MobileNext drives for us, this gets the MX -- it's one of the services of that can run on the MX to make the MX an established footprint on the edge of the network in the wireless side.
And we've seen a lot of adoption of the MX as it's engaged with customers on the wireless side, in the addition to the wireline side. MobileNext will continue to build out new sets of features. I'll let Bob talk a little bit about the new feature capabilities. We're making slow but steady progress on MobileNext. But the key for MobileNext is to establish the MX as a footprint in the wireless, and we're pleased with the progress we're seeing in the MX, and we continue to focus on the work that we're doing with MobileNext.
Bob, do you want to comment just briefly on Yes, I'll add to that. And we're getting feedback from our customers that there are a set of additional features that they're interested in seeing from us.
And the unique thing about that is that it provides these broad services for both wireline and wireless customers. And so Ehud, in terms of the mix comment on the call, yes, router mix was favorable in the quarter.
The other thing I mentioned on the call was that it was offset by a few costs on the security side, which has to do with our deployments of some recently -- some recent wins in terms of the security side. So that's what I mentioned that was offsetting the favorable mix on the router side. I was actually talking about QFabric. Can you give us a sense as to how large that was and has that impacted gross margin at all on the router side?
So in terms of QFabric, we were pleased with the performance of all 3 lines of business in the switching area. And in terms of gross margin, that was a -- no impact on the gross margin average. Our next question comes from the line of Simona Jankowski with Goldman Sachs. The routing was better than expected in the quarter even though you highlighted some of the weakness in EMEA at Service Providers and also even though Verizon was down sequentially. So can you just give us a bit more detail on what drove the upside there?
And also just as an update on the T, which I know you highlighted, the revenues in that product, are they still tied to qualification or are we seeing actual deployments? And if not, then when do you think we'll see the deployment revenue for that product?
Thanks for the question, Simona. I'll take the second question and then we'll let Robyn comment on the overall router revenues for expectations. The T is -- as we come out with that product, keep in mind, it's a seamless upgrade to the existing T Series chassis.
And what we see customers doing now, we have a number of customers who have purchased and implemented the chassis kit that allows those chassis now to be provisioned to be able to accept both the older T Series line cards, as well as the new T Series, T line cards.
And then consistent with the way service providers go, a number of them are going through certification testing and -- in that process. But I think we're pleased with the level of engagement that we've gotten, both with PTX and T in the core.
And we're going to continue to stay focused as we work with customers through the certification process and then certainly as they do line card upgrades that presents more opportunity for us.
And in terms of the overall mix of routing, both core and Edge were up quarter-over-quarter. Core was also up year-over-year, which is obviously a favorable trend for the quarter.
So we were pleased with the routing mix in the quarter. But just as far as a little bit of additional detail, could you just highlight the source of that sequential increase? So if you can just highlight a bit more, if any, incremental new wins or upgrades or what might be happening just with your other customers.
Yes, thanks, Simona. I think -- it clearly was more U. And certainty, within the U. So if you look at certain sectors of the U. There was also a strong performance in U. But I'd say, net-wise, it was mainly driven by strength in the U. It's a combination of Tier 1, as well as our cable segment, and offset a little bit by some of the weakness in Europe. Rod B. Just one clarification for Robyn and then a question.
Clarification is on the gross margins in services. Robyn, you said that one of the drivers for the better margins were costs. I just wonder if you could elaborate on that a little bit in terms of what you guys have changed with respect to costs there that helped the gross margins? And then the question is on the Riverbed deal. I think I heard you guys say that it'd be some time before you'd ship products that would incorporate that Riverbed ADC software, which makes sense.
I just wonder if, in the meantime, there's any opportunity to do joint deals or any kind of partnership out in the channel to serve customer needs? Yes, I'll talk about the gross margin and then I'll hand it over to Bob. So in terms of services gross margin, it was good sequential increase in terms of gross margins for services, driven by revenue growth quarter-over-quarter and also by cost, as you mentioned, Rod.
So on the cost side, we've been talking about increased costs in the services space for a while due to architectural personnel and increased sparing and increased services capability to do with our new product introductions.
So clearly, good cost management on an ongoing basis by the team in Services also helped this quarter with our gross margins. Did you -- Robyn, did you guys actually hold costs stable while revenues grew? Is that more what happened? Or did you actually reduced costs? We did reduce cost a little bit but also revenues increased in the quarter. So it's a combination of both, that's why I talked about both on the call. So in the context of the Riverbed relationship, there are really 2 parts to the relationship.
One part is working with Riverbed to incorporate their application acceleration technology into the Pulse mobile client. And we will not really be very able to do a lot of go to market work with them in that space until that technology is integrated in, but that is on its own schedule and we'll work with them to get ship dates at a little time. The second piece is really the ADC technology that we licensed from them, and we would anticipate that technology being built into Juniper products and being delivered to the market as a Juniper set of products.
So we are not -- there's plans to resell the Riverbed technology in that space. Bob, I guess what I was wondering is that it sounds like the ADC will take a while to build into products. It's not going to happen overnight. So -- but I assume that that's driven by a customer need. Customers are wanting some ADC integration. Is there any -- and there's no opportunity to work with them to do joint solutions for customers or something like that?
Well, there's always an opportunity and it was not -- there's nothing specific to announce at this time on that. But we definitely see that this technology is very interesting. We see there's an opportunity for software to add value on top of the systems that we build. It is particularly interesting in the data center space.
This is one of the good examples of software services that are very complementary. We also see long term that, that technology is beneficial in other domains such as the Edge in the Service Provider space. A question with respect to gross margins and then a follow-up on the financial model. So I think that would imply that you have an increasing richness of the revenue mix as not all that improvements came from increased volumes. I guess I'd love to hear the puts and takes there. And then also how that transitions with respect to the September quarter because I would expect that the new products will be ramping faster than the older products and some of them carry, obviously, higher gross margins associated with them.
And so at the high end of the revenue guidance implies flat gross margins. I guess I would expect they would be actually a little bit higher than that, so would love some commentary there. I apologize, I was -- actually missed the prepared remarks. So in terms of the mix in the quarter affecting gross margin, yes, routing mix was up in the quarter, and I mentioned in my prepared remarks that core was up both quarter-over-quarter and year-over-year.
And as we've discussed, that does have a favorable impact in terms of gross margins. So we're pleased with the gross margin performance in the quarter and do see that, at the high end of guidance, continuing into the third quarter. I think that was the question. Was that the question, Brian? Yes, I guess. A follow-up on the September gross margins. I mean, all things else being equal, if you're flat sequentially on the revenue side, I would anticipate that you have an increasing richness of the mix and so margins would be up.
So I guess, can you talk a little bit about what the offsets are that will be pulling that down, if that would be the case? So in terms of our guidance for the third quarter, in terms of the trends that we see, we obviously see a continuing weakness in EMEA in Service Provider through the end of the year. Kevin mentioned that and so did I. We also see continued positive momentum with the U. Service Providers. And obviously, we also see some opportunities to increase revenue in terms of Enterprise.
So in terms of mix, we're really calling it to be roughly flat going forward between Service Provider and Enterprise growth there. Just a clarification. And then the question is, with the assumption of a better second half, what sort of seasonality should we expect later in the year? Should we think of similar sequential growth levels from last year, or should we think of normal teen sequential growth rates?
I ask since U. And the European carriers, it's been so long since they've upgraded their networks. It seems like they are due for a big upgrade. So I'm just trying to get a sense of how you feel about the -- how we finish the balance of the year. I'll take the regular question first. No, it does not mean that our Radware partnership ends.
In fact, we continue to work closely with Radware and delivery of their technology on top of the MX platform to a variety of customers particularly focused on the service provider edge.
And we'll be pleased, even after we have product in the market that does application -- that does ADC technology on our own. We'll be pleased to continue to work with Riverbed and service customers that want to use their technology. And Mark, I'll take the second part of your question on seasonality. What we see with U. Tier 1 service providers, seasonality first half versus second half is returning to sort of the more expected pattern that we saw with the exception of last year.
We think second half spending by the Tier 1 service providers in the U. So the net is I think we're taking a cautious position given the macro environment in Europe and continue to play to our strength with our business in the U. Kevin, just a quick thought. The networks -- a lot of the networks in Europe seem to be running above service-level agreements, which implies that they have to upgrade. What's the kind of feedback? Is it just still their -- the macro for them, their balance sheets or their CapEx?
And do you think that we'll get to a point where they have to upgrade? Yes, it's a good question, Mark, and I think we've seen this pattern before. The long-term demand fundamentals of growth in network traffic continue. There's more devices, there's more video, there's more users, there's more data centers, there's just more traffic. So as traffic continues to grow and if there's a slowdown or pause in some of the capital expenditures for routing in the service provider sector, certainly that implies that customers are running their network hotter, and that will be consistent with our view and our engagement with customers.
The question will be at what point do they either hit the point where they're running so hot that they need to make the investments, or at what point do the economic conditions for those customers hit the situation where they start to do upgrades and build more capacity in their networks? But the important point, I think, is the long-term demand fundamentals remain intact. Traffic continues to grow, and every customer situation is different.
In certain cases, it may be a function of their revenue. In some cases, it's a function of their balance sheet. In some cases, they're being cautious given the economic situation in the country that they reside. But what we're doing is we're being very focused and very connected on -- with those customers to ensure that we're working proactively with them so that when they do start to spend and upgrade and launch new projects, that Juniper is there with a great value proposition and prepared to help them do that.
Our next question comes from the line of Jeff Kvaal with Barclays Capital. Jeffrey T. Kvaal - Barclays Capital, Research Division. Robyn, a question for you on the OpEx. The numbers that you're providing are for a full year comparison of to ? And then the second part of that is, why would it take so long for the reductions to filter into the financials? What we're expecting to see is that impact really starts to come in, in Q1 of next year and increase over the full year. And so as I said in my prepared remarks, the second half of the year is where we see the majority of the reduction happening.
Why not get started on that process a little sooner? And then furthermore, are there specific areas that we should be watching for the reductions? Yes, yes. As I outlined in FAM, I mean, we're working on productivity and efficiency initiatives across the company.
So it's quite surgical. There are the things that we're actually targeting in terms of sort of long-standing cost reduction activity rather than just one set of being in one area. Yes, I'll just add, Jeff, we're not waiting for some of that. We're working on this, and we will get these -- the cost structure in place as soon as practical, and we're trying to be very thoughtful about how we do that, so that we maintain a focus on the priorities we have, which are driving the revenue, top-line revenue, continue to drive the wave of innovation.
But gaining these efficiencies, a lot of what Robyn described is through efficiency gains which has to do with process change and underlying systems that get aligned with them.
But we aren't waiting. We're moving, and we will get these as soon as practical. James Kelleher - Argus Research Company. Kevin, can I just ask you, observations on VMware's move into the space with Nicira, what are your takeaways on that deal?
Yes, thanks for the question, Jeff. I think at the Analyst Meeting in early June, Pradeep, Stefan and Bob, I think, shared our view of software-defined networks and our focus on this. We certainly are aligned with the goals and where software-defined network are going. We, I think, at the Analyst Meeting, outlined how we described that 3 years ago with our launch of the concept of the new network.
We certainly have been very engaged with the industry and the community as it relates to software-defined networks, and we will continue to stay very engaged in it. And certainly, the work we're doing in our switching and fabric business as it relates to data centers is very applicable and very relevant to Nicira and very applicable and relevant to what VMware is doing.
That said, we're going to continue to focus on how we can innovate and deliver the best possible solutions to customers in a world of software-defined networks. Our next question comes from the line of George Notter with Jefferies. George C. Just expanding on that thought. Is there a set of timelines or dates that you guys have in mind? And then also on QFabric, I guess I was just hoping to get an update on customer count there and any more comments or tangible data points you have on traction with QFabric could be helpful.
Let me take the first question of when we'll be delivering products in the SDN space. We already have today a number of products that have many attributes of SDN, and I'll first point out that when the industry talks about SDN, there's a great deal of similarity to the programmable network, which we've been talking about for several years. SDN is really all about how applications in the infrastructure that support them can drive the network and get the network to do what it wants. And that's really precisely the same goal we outlined several years ago when we talked about the programmable network.
In specific areas of SDN, things like OpenFlow, we have today some open-source capabilities for people to build on top of our platforms, and we're in the process of building production capable OpenFlow technology across a wide variety of Juniper products going into So you're seeing -- what I would say is we have products today, and we're going to continue to enhance and expand those products, and we'll work very closely across the industry, including with partners like VMware, to ensure that Juniper Networks, the platforms and the software that we provide is the best complement to the software that they deliver.
Yes, George, I'll give you sort of a quick update on QFabric. I think at the end of our last quarter call, we had mentioned, I think, we had customers running QFabric nodes. In this quarter, in second quarter, we surpassed the customer mark running QFabric nodes.
And so we continue to see very good uptake of customers running QFabric nodes, and certainly, we're seeing a growing number of those customers also now purchase and either go through certification or deployment of the full QFabric systems. We announced the -- a new interconnect system called the QFXM and this is important in a relevant point because it is a fixed interconnect that provides QFabric for up to 16 nodes.
And so it provides a lower entry point for those customers who have purchased and deployed nodes who now want to try the full QFabric system. They can deploy the QFXM, and it lowers the entry point and provides them flexibility in terms of how they want to deploy that in a fixed interconnect node. So we've got -- we've surpassed customers in the quarter, continued to see good progress on the QFX with the top-of-rack and the nodes and certainly, a subset of those customers purchasing continue to deploy the full QFabric system.
Our next question comes from the line of Paul Silverstein with Credit Suisse. A couple of quick ones. First off, Kevin or Robyn, can you comment on linearity in the quarter as well as closed rates? Secondly, with respect to absolute run [ph] optimization, curious, Kevin, have you gone back and looked at -- what's different this time around relative to back in '05 when you purchased Redline and Peribit, which if I remember correctly, Peribit was the leader at the time it went up.
Redline was a pretty decent private company as well. What's different about this initiative relative to that last go-around in terms of driving revenue and bottom line? This isn't coming from headcount reduction, maybe I misunderstood. So Paul, let me tackle the first question and the last one. In terms of linearity, nothing unusual to comment on in terms of linearity for the quarter.
You can see with the DSO that we had that it was a relatively linear quarter. So nothing unusual to comment there. In terms of the cost reductions, let me start by saying where our strategy is around driving revenue growth. We talked about that in the -- at the Analyst Day. We're very focused on doing that. We're also focused on driving operational execution across the board, whether it is to drive that revenue growth or reduce our percentage of OpEx to revenue.
So these -- what I've announced today is that we've now -- at FAM I talked about -- we had identified opportunities in that range, now we've identified those cost savings, and we're in the process of implementing those as we speak.
But we're very focused on delivering both, both revenue growth and operating expense efficiencies. So -- and with regards to the question about the previous acquisitions that Juniper did quite some time ago relative to the work that we'll be doing around, particularly the ADC space, I can't say too much about what happened a long time ago. I certainly wasn't here then. But I will say that today, as we sit here, we have a great deal of clarity across the 2 customer segments that we're targeting, the Service Provider and the Enterprise, the 3 businesses we're in, switching, security and routing, and then the 7 domains.
Manoj rotated in to take over our specialty sales force that we call Advanced Technologies. Now Manoj is a year veteran of Juniper. He's now rotated over, and he's leading our Advanced Technology group, where we've got our fighter pilots that can go deep on any one of these technologies. And then certainly on the channel partner side, Emilio Umeoka.
Emilio has spent 7 years leading the channel partner segment at Compaq, followed by a career at Microsoft, where he led all of Asia Pacific. Emilio has been with us now a little over 2 years, and he has really transformed the work that we're doing with our channel partners. So you put that together, I feel very confident we've got the right technology, the right sales and marketing leadership, and it's complemented with the work that we're doing to ensure we have the right technical expertise in the field.
These are technical experts on the domains, technical experts on the architecture as well as technical experts on the products and technology. And you'll hear later today from one of our customers and their experience in dealing with our sales force and how that technical expertise certainly led to some great outcomes. And then finally on the sales and marketing side, we have been systematically going through and raising the bar on our sales force, and it's raising the bar on one dimension of how we're upping our game in terms of the strategic relationships that we have with our largest customers as well as upping our game in terms of the consultative selling capabilities that we have.
We think those 2 dimensions are really critical. They're critical for us to deepen the relationships that we have with the customers, and they are critical for us to broaden the relationships to more customers. This team is all about monetizing the investment we make in these great products and taking them to market. Clearly, across the company, I would say we are elevating our capability at all levels.
We're attracting the talent we need to the company, we're retaining the talent we need and we are developing great talent. Certainly, people come to Juniper because they want to be a part of the innovator. They want to be a part of a challenger who has a thought leadership agenda, is investing and wants to innovate in ways that deliver customer value. The culture and values of the company is really the glue that's holding things together in the way that we work and we collaborate and we, really, drive across a wide range of disciplines to bring things together and do a great work building great products and selling great products.
Now throughout the day, you're going to hear from many of the management team, and we're going to be here for questions.
The questions that you have are important. There's a set of questions, certainly, that we've collected, questions that we've outlined here. How has the leadership team evolved? You'll get a chance to see all of us today and a chance to ask questions.
What are the key areas of our sales execution focus? Gerri and Dan and Vin are here to share that with you. Manoj, Emilio, they're here to take your questions. What is the outlook for the markets you address? Robyn's got a full section.
She's going to take you through what we see happening and unfolding on the addressable markets. She's going to take you through our operating model and what that means for Juniper.
We have questions about the topic of software-defined network. What is it, and how do we think about that? Well, following Bob and Stefan's session, Pradeep is going to take you through a deep discussion on that, and then we'll have Bob, Stefan and Pradeep answer your questions.
Long-term financial model, I know that's top of mind. Robyn has a complete drill-down and session on that, and we're happy to take your questions, and that will include what kind of growth should we expect from the new set of products we just introduced?
We need to start putting a stake in the ground for you to help map the progress we're making on this new wave of products. And then certainly our strategy to recapture momentum in enterprise security.
Hopefully, some of you had the opportunity to participate in the Chalk Talk that Bob and Nawaf hosted earlier today, where we took you through a little bit of the framework and the set of things that we're doing. But your questions are important. You took the time and invested the time to be here today, and I want to just say thank you for that, and we want to make sure that we spend enough time answering your questions and really focusing on the things that are important to you.
Now before I hand off to Bob and Stefan, I just want to summarize a couple of key points. Our view of creating value in the marketplace and creating value for our shareholders is a formula that has worked for Juniper since the founding of the company.
It's a formula that's about our thought leadership agenda and innovation. It's a formula that requires great operational execution and excellence, not only building great products, but selling great products. Putting those 2 things together requires world-class talent.
We are very focused in all 3 of these disciplines, and we continue to stay very disciplined and very focused on what we do and what we do well. The areas that we can improve, we're focused on, on improvement. The areas that we know are formulas for success, we're staying focused on formula for success. At the end of the day, these are key to growing revenue, these are key to becoming more efficient and more productive, these are key to driving excellence as measured in terms of quality and customer satisfaction, these are key to doing the things that we do in an agile way.
And it's the world-class talent that makes that happen. So thank you for joining us today. It's now my pleasure to introduce Stefan Dyckerhoff and Bob Muglia. Bob, Stefan? All right. Thank you, Kevin, and good afternoon, everybody. Thank you for joining us today.
So when we look at the last few years and the thought leadership agenda that we have introduced with the New Network, this has really guided the innovation engine, and that innovation engine has produced the broadest and best product portfolio that I think we've had in the history of the company.
But with all of this macroeconomic uncertainty, what is the opportunity for us? How should we think about the market? Now as you break that down, you look at switching, for example. We're focused on the high-performance part of that market, not the entire market, but the high-performance part.
On the routing side, obviously, we've seen the most uncertainty if you look at the press and you look at the reports. So certainly, lots of opportunity in routing and switching as well as security. So complementing the routing and switching business, security is also a very large market. So put these 3 markets together and what you have is Juniper participating in an overall very large total addressable market.
And we don't see a need to change this focus. We are focused on the high-performance networking segment and we see tremendous opportunity in the places that we're working to get today. And certainly when I think about the software portfolio that we're building, it very much complements the platforms that Juniper has built for many years. As we move forward, we see networking taking on more and more elements of capability based on software that can be delivered really on top of that platform.
So it's that complement, the platforms and the unique capabilities they delivered, starting with the silicon, put together in systems that drive unique innovation for our customers, coupled with and unleashing new value that software can deliver. And that's why Stefan and I are working very closely together to make sure that the product portfolio that we're creating is focused on meeting the customer needs and really executing on what the customers require.
So as we spend time with you today, we want to focus on how do we deliver this innovation to market. We've now expanded the product portfolio to what we think is necessary for us achieve our long-term goals, how we're going to go about executing that. But before we do that, let's look back a little bit at the last 18 months since we last got together at the last FAM.
In terms of key accomplishments, for me, what stands out is: first, we continue to take share in Ethernet switching. We're expanding in the data center with our QFabric. QFabric is a product that is key for us to intersect the megatrend of cloud, and the reason we built QFabric is to gain more share in Ethernet switching. So we feel good about where we are, a lot of great work ahead of us and we want to continue the momentum. On the service provider side, and particularly with routing, we continue to stay focused on the key architectural transitions that we outlined last time.
At the edge of the network, it's all about the Universal Edge. The MX is the platform for the Universal Edge, and we delivered the key systems upgrade, in particular, the gig upgrade that we talked about last time. And of course, on the software side, there's also a lot going on with the Edge. The Edge is an area where tremendous innovation is possible in software, building upon the unique capabilities that are delivered within the MX platform.
And we're building on that with services like MobileNext as well as a new and broader set of services. We'll talk about that a little bit more when we get to the Edge section, but things like DPI as well as enforcement that we'll be delivering on top of our standard Universal Edge MX platform. Of course, the biggest product cycle we have going on is the core, and there we have 2 tools that we're going to use: first, as IP traffic grows, the traditional IP core will continue to grow.
We launched the T Series 10 years ago now. We have about -- we have a number of chassis out in the market, about 7, installed, and we delivered the T to evolve the IP core of today. The next big thing in the core will be the evolution of transport towards packet transfer based on MPLS. And there, we talked about the PTX last time at FAM; in fact, we launched it at FAM; and talked about delivering that product in Q1, which we did, and we have a couple of great updates for you today in terms of adoption of that product in the marketplace.
So in security, we spent 1 hour earlier this morning talking about our overall strategy for security. And so what I -- just to sum that up, there's really 3 things. And with the SRX in particular, we've taken a very strong leadership role in very high-performance security that is very, very targeted at what with the service providers require.
And we see a strong upgrade cycle coming as service providers deploy LTE and need the capacity of an SRX firewall behind that, and we see ourselves in a strong leadership position there.
At the same token, we have missed the ball a little bit on the enterprise side. Our focus on the service provider put us a little behind on the enterprise and particularly associated with application identification, content security as well as manageability.
And we're addressing those and focusing on filling in the gaps that are necessary within our product portfolio this calendar year with things like security design, which we already have released and have new versions coming out later this year, and some of you had the chance to see a demo of that.
The third piece is taking on and building on these things. We're focusing on how we can drive an overall complete portfolio of security and acquiring real thought leadership in helping customers to protect their assets in a world where the security landscape has become increasingly more complex.
And we showed an example of that today with some Mykonos technology that we acquired recently that provides a unique capability in the market associated with Intrusion Deception. But I want to point out that that's just one of the many things that we're doing across the overall security portfolio to drive a unique value proposition for our customers. That's great. It's really how we drive the customer conversation.
That's right. I mean, Kevin talked a bit about this, but what we've done over the last 5 or 6 years in putting together a broad part of product portfolio enables us to address the key networking conversations that are happening within our customers about how they can use their network to gain competitive advantage. And when we think about domains, it's really a way for us to have a conversation, a business-focused conversation with the customer about how networking can add value.
And in thinking about the segments we address, which is really the service provider and the enterprise, the conversations are somewhat different. In the service provider space, the network is their business.
And they look to Juniper as a key -- as a leader in the industry to help them understand the major architectural transitions that will allow them to get ahead and monetize their network assets the most effectively. And clearly, the product lines that we build are critical for them to be successful in this business, and we're able to have a very deep set of conversations with our service provider customers around us.
In fact, the connection between the work that Stefan's team and my team are doing to provide, really, solutions for service providers that we can work with our field organizations, Gerri and her team, to go out and have those conversations is very different than we've had in the past. Juniper has really graduated through the domains and through the breadth of our product portfolio to a very different set of architectural conversations with our customers.
And we see some interesting examples of that, and Verizon is an interesting example of that, that we'll talk a little bit about. On the enterprise side, it's a different situation, because the network is really just a part of their infrastructure.
They're focused on their business and the applications that drive that. Infrastructure is required, and the network is a piece of that. But as I've been reminded by CIOs, I was just out at a panel last week when I had a conversation with a number of CIOs and I made that statement, that a network is a part of their infrastructure, and they reminded me that the network is a part of the foundation of what builds their company, and if the foundation isn't solid, the entire building crumbles.
And they see networking as something that they need to really ensure is rock solid so that they can be successful in building their business. So all around us, these domains is providing us with a way of having a different kind of conversation with customers.
And in fact, we've gone through this before. In Barcelona, Stefan and I took you through the domains in some depth. And what we want to do today is something similar to that and talk about the domains, but let's talk also about how the products and the domains fit together. So it's a little bit of an update on a subset of domains that we wanted to highlight to you today. And the fact that multiple products play in multiple domains is part of the New Network strategy.
It's about reuse and simplification of the architecture. Yes, the products play across them, but the way it gets used is different. The way, for an example, on the SRX is used in the Edge is different than the way it's used in the data center in campus and branch. So we have to tune that to meet the needs of our customers. At the same time, one of the things that really differentiates Juniper in this industry is having this breadth of product portfolio.
Most of our competitors don't have that. But if you take the one that does, one of the big things that's very different between us and that large competitor down the street is the fact that we have a common platform across all of these products. Our products are based on a common heritage with Junos, which means they work the same from a customer perspective and they can be connected together.
And we're doing that with Junos. We also do it with our management platform, Junos Space. One of the things that's been very rewarding for me as I've come into this company partnering with Stefan is the way we were able to leverage and build on that common foundation to make our products work together in a seamless way, something that's very differentiated for Juniper. Something that the competition really struggles to do. So let's dive right into the various domains. First, the new domain, access and aggregation.
This is a domain that actually has seen a lot of growth over the last years, growth that we didn't participate in because we were not in this market yet and that we're about to enter this domain. The growth of the last year really has been driven by mobile and by backhaul, mainly an extension of Legacy TDM technologies as well as Layer 2 Metro technologies to backhaul the traffic from -- that's growing in the wireless network.
The big change that's happening here is that the explosion of wireless traffic is continuing. We have 4G. We're now bringing Wi-Fi as one of the access technology. We're bringing small sales. Fiber to the home is still rolling out. Certainly, fiber to the cell site plays a big role. And that growth, in our mind, creates a big change from a few years ago when the last upgrade cycle started. With the ACX, we think we have very strong differentiation.
It is about performance. It's about performance in a physically hardened environment. We build a high-performance system that doesn't need a fan. This end-to-end solution uses both the ACX as well as the MX and gets managed both from a network management point of view as well as a service creation point of view by Junos Space. That is a great solution for customers that are struggling to see how they can expand the capacity of their access and aggregation without exploding the budget and investing into more Legacy technologies.
And this is a new product. We're about to ship it, and it really opens up a whole new market opportunity for Juniper. It is a -- an area where we really, as you said, have not participated but we have a lot of growth. So the SDK is key to this. We're very excited about the traction of the product. We have multiple beta customers, we have multiple design wins already and the product is on track to ship in Q3. And as we roll that out and work with our customers on this architectural transition, we're very confident in the success we're going to have here.
That, of course, ties seamlessly into the Edge. In the Edge, we're in a strong position. In the areas of the Edge that we're focused on, business, broadband, customers, data center interconnect and, of course, security, we're either 1 or 2.
We're in a strong position. The MX, as you heard Kevin talk about, has been a growth driver not just for the Edge, but for the entire company.
We have about 30, chassis out there, and most of those chassis are the bigger, modular kind, which we're now upgrading to gig. In fact, if you look at the evolution of this platform, this is something that sets us apart, right?
We shipped the MX in Today, the capacity of the same MX chassis, let's say the MX that you brought in , is 6x higher than it was in So the fact that we can evolve the capacity of the product as customers use it in the network is a key selling point and enables the customers to grow their investment with their traffic.
And of course, on the software side, we continue to invest in the feature sets to build the Universal Edge. If the Universal Edge remains our strategy, we think fixed and mobile as well as business consumable will continue to come together for new service creation as well as efficiency. And the MX will remain our platform for that, and the investment that we're making in making sure that platform is always at the leading edge is very high, both in systems and in software.
Yes, we were able to take the MX and keep it in a leadership position. And in many senses, the MX personifies the focus that we've had for a number of years on the programmable network, because it provides a platform that enables a wide variety of services to be created. We start with unique silicon. I mean, it's interesting to always go back to the roots of the company.
It starts with unique silicon and the differentiated capacity capabilities that the Trio Chipset provides, both in terms of the amount of capacity as well as the kinds of services that can be built on top of that.
And if you look at what the MX delivers, it delivers a platform that enables software teams to build a wide variety of services. We have the service delivery gateway, which has a large amount of traction and a wide variety of customers providing a broad set of core networking services that are inherent to their need, especially as they do things like move to IPv6 networks and need to have a wide variety of services running on that.
As we look into the mobile space and the emergence of the mobile space, Juniper is branching out into the packet core space, focusing on the needs of mobile carriers and particularly as they develop -- deliver and develop LTE-based networks.
And we do that through our MobileNext product. But the overall MX can support much more than that. The combination of Junos plus the MX provides, really, a broad services platform that enables both Juniper and our partners to build a set of application services that run on top of it. So while today we have a set of core networking services and we've done things like the EPC, what you'll see in the months ahead is us introducing new services that run side by side on the MX that provide new capabilities, things like DPI support as well as enforcement capabilities, that are particularly required.
They're required in both wireline and wireless, but they're particularly essential in the wireless space where the spectrum constrains capacity.
And you'll see us rolling out the first set of those new services later this year. And in general, we think about the MX as a workhorse that we'll be able to ride for many -- it's a thoroughbred, really.
It's a true thoroughbred that allows us to ride for many, many years forward and build these broad set of software services. Well, there's nothing wrong with a workhorse. No, it's a thoroughbred workhorse, really. And maybe I'll cut -- I'll mention on that is that same sort of foundation, that same Junos foundation lets us do some things in the security side, and we see ourselves in a strong position with the SRX.
And in fact, we showed off some of that this morning in the security presentation. So if you look at those capabilities in terms of how they translate the customer success as we work with Gerri and her team around that architectural transition, you have customers like Verizon for the FiOS network. They're a big believer in the MX, the fact that you can have multiple services on the same platform, and that is certainly one of the applications.
And that extends to some of the advanced software capabilities. That's an example of many of our service provider customers that are leveraging the broad services capabilities that the MX delivers. So let's change gears from here to the core of the network.
Here, it's all about the capacity and the cost of transporting bits. By now, we see MPLS thoroughly winning in the market in all of our customers. It doesn't mean that no optical transport gets deployed. And I mentioned our 2 tools, the T, with over 7, chassis installed, every one of them can be upgraded from wherever it is today, whether you're still using T that we shipped in or you're using T that we shipped in , you can upgrade that in service to a T This will be the focus on our product line.
You don't have to make compromises. The vast majority of our own [ph] stock core routers are single-chassis system. If you use the T, you're going to be twice the capacity per slot of a CRS So this is a very powerful offering to our customers and one that we think many of them will take advantage of.
And then they look at the evolution of their transport network, and that's where the concept of the Supercore is so important. The market has really embraced it. How do I flatten my network without -- bringing me the capability of MPLS without having to pay a penalty in terms of price at a network level for that architecture? And the PTX is our answer to that problem. And as we see the customer traction that we're very happy with, we are happy to share a couple of key examples today.
Last week, Tony Malone from Verizon talked about the fact that they're going to converge their wireless network, they're going to converge their business and their Internet network onto one core network. The platform that they've chosen for that core network is the PTX, and we're very happy about that.
It really speaks to not just the fact that PTX is a great product, but how do we work with customers to help them achieve their business goals through the architectural transitions that we see in the industry. And working with Vince Molinaro and Gerri's team and the account team for Verizon, we were able to really exercise that new muscle of architectural selling.
It seems like the PTX and the Supercore is a good example of how we're able to have a different kind of conversation with our customers.
I think it's a testament to the work that Gerri and her team are doing to have that level of different conversation.
But it does start with the products, too. The products have to be there. And one thing that's interesting here, Stefan, is -- I mean, I mentioned the Trio Chipset a few minutes ago, which is -- which provides a broad set of services for the MX.
We have a dual silicon strategy which I think is pretty important, right? The key strategy decision from a technology point of view we made with the PTX is that because it's all about capacity and cost of bits transport, you needed different silicon technology in this area of the network.
Traditionally, the whole industry has basically built routers kind of with a little bit of a one-size-fits-all across core and Edge because really, they were still very much generalist platforms. We think this is changing in a fundamental way. The Edge has to be more capable in terms of services, and the core has to be more efficient. And that's why our long-term bet on driving these 2 silicon technologies, we think, will provide us a competitive advantage, not just the 12 to 18 months of market lead we have today with the PTX, but continued through the generation of chipsets.
The second customer I want to mention is the London Internet Exchange, third-largest Internet exchange in the world. And they have not just committed to the PTX, but they've qualified in record time. In fact, it's already running in live production in their network in preparation for the Olympics, which is a big event for them, of course. So that architecture there of the PTX and the MX has a really powerful effect in the way they can architect the exchange for scale, and we're very happy to have them as one of our customers.
Moving onto the next domain, the data center. So there's a lot of things going on in the data center, and you've had a lot of experience, so tell us a little bit about what's going on. The data center is a domain that is going -- undergoing a great deal of transition for almost all of our customers because of the emergence of cloud. And we see customers embracing public clouds for a set of services that are not differentiated, things like collaboration, e-mail, maybe sales force management, customer relationship management.
Those are examples of things that are tending towards public cloud providers. But we also see a real significant transitioning happening within customers as they take their virtualized systems and begin to automate those and provide a -- provide private cloud environments that enable the business units within an organization to really get their needs met without any human intervention in a fully automated way.
That's really the differentiation between a private cloud and a virtualized environment is the automation associated with that. And with that comes a lot of dynamicism within the network.
The environment becomes very dynamic, because applications can be created in just a few minutes. And sometimes, they're only up and running for a few hours at a time. In contrast to a traditional application that might run for months or even years, sometimes applications, for example, a big data application that's focused on data analysis, might only run for a short period.
And the network has to adapt to that. The network has to change. And it has not traditionally been well structured to enable that. Now what we've done is we've built a set of products that form today's foundation for that dynamic environment, and that really starts with QFabric and the work we've done to build a very, very high-performance network that delivers a set of capacity capabilities that are really pretty unmatched in the industry today.
As you look at these environments, the technology transition that we had highlighted in the past is the shift to all gig connected services. That's what we're focused on today. Clearly, the majority of data centers today is still 1-gig data centers, smaller data centers, but the big wave of transition to gig has certainly started. As I mentioned on the conference call a few months ago, we have about -- over customers now on QFX, all in.
All of them look at how they solve their data center problem today and how will they evolve their data center in a way that guarantees the same performance and the same kind of efficiency without having to change the architecture again as they grow.
I would also highlight the speed test that we have done, actually connecting 1, gig service into a fabric and proving that we can have the kind of performance and latency that we -- that is required for these next-generation data centers. And that's certainly been well received. And like with any one of our platforms, whether it's the MX or the T or the PTX, we are working on creating a full platform family.
So we start with a very high-end in QFabric, right, a configuration that can take up to 6, gig servers. And today, we announced that we have a smaller configuration of the same QFabric technology that is more optimized towards the sub-thousand-server category. And certainly as we roll that out, there are new opportunities that we can address with this new product, all the while staying focused on the very-high-performance gig data centers that we think will make up the future of what data centers and clouds will be.
So certainly a lot of work for us to do. We're very focused on working with the key customers that we have. But we have a number of key successes already. We continue to win lots of customers, particularly in the financial sectors, that have mission-critical requirements of their data centers. So we see the initial validation, we're broadening the scope of what QFabric can address, but all with a keen focus on making sure the first customers have a great experience. But of course, the fabric is not the only thing in the data center.
It needs routing with the MX, it needs 1-gig connectivity with the EX and it needs a whole lot of security. It needs security, and here, the SRX provides a very strong value proposition because of the capacity it delivers inside the data center domain. And when we look at the data center, we talked about the fact that we've been focusing on programmable networks and the need for the network to dynamically adapt to the needs of the applications. There's no domain where this is more important than the data center.
In fact, as the industry begins to talk about software-defined networks, we think that, that will first emerge within the data center domain, and it speaks to the strengths that we've been putting in place with the foundation of Junos and the programmable network over the last few years. And we've made a set of investments within the data center space that position us very, very well to take and exploit this emerging trend to programmability within the data center domain.
In particular, we have a product called the Virtual Gateway that runs inside the virtualization environment, the virtualization and cloud environment that can provide a set of security services right inside the hypervisor that exists on all of these different cloud servers. And what that can do is really provide the isolation and protection that's required for these cloud environments.
And if you look at any public cloud that's being developed within an organization, in almost every case is there's a need to provide a set of isolation components, different zones within there for different kinds of systems.
For example, within a financial organization, trading systems need to be separated from other lower-priority systems such as HR or software development. And what VGW does, Virtual Gateway does, is it provides these isolation capabilities right inside the cloud environment in a way that's very unique in the market, and we're seeing very strong interest and adoption in this. As an example, SK Telecom, we're seeing a broad set of deployments inside their 4G LTE buildout, have -- building a set of cloud environments that augment that and support that.
And they're using VGW as their security component within the cloud to provide that protection that they need. Now in the months and years to come, as we see software-defined networking taking a broader role, we see it happening first in the data center space, and these foundational investments that we're making position us very well.
Pradeep will have a chance to talk more about that right after us. So last but not least, we want to highlight the campus and branch. And this is where we've talked to our partners and customers about Simply Connected.
What's happening in this part of the market is 2 things: the wireless network is becoming more and more important because it's becoming more mission-critical. All the employees do their work this way. This is leading to a convergence of wired and wireless access in the campus and the need for an architecture that is much more integrated as opposed to just another overlay on top of an overlay.
And as we invested in this market with both our wireless portfolio, the acquisition of Trapeze, where we've made good progress in integrating that into our Simply Connected story, that's also allowed us to take share in Ethernet switching with the EX product line.
And we continue to hold the 3 position there. If you think about Simply Connected, it is really about secure mobility at large scale. To do that, you must have operational simplicity. This is the key value for IT. It is very difficult to manage these networks today, particularly the wireless overlays, and that makes it error-prone, and that makes it hard to rely on for the productivity in your company.
Users are also becoming much more demanding about the performance of the wireless network and the consistent experience between wired and wireless. This is both a challenge for the infrastructure, the wireless infrastructure, the wired infrastructure as well as something that one needs to address with security and authentication. So we really see in this domain all of the different assets coming together. And in a lot of senses, campus and branch for a company or a public sector organization is really the place where these things meet.
And in fact, although we're not talking today from time reasons about the WAN domain or the consumer and business devices domain, they really all come together inside the campus and branch.
And the way we think about it and really the way our customers think about it, and we're reflecting on that, is that they would like to see an end-to-end strategy that begins with the end user and the device they're working on, whether they're within their campus environment using, say, a business-supplied PC or whether they're using one of their mobile devices, there's a set of business resources they want to access and secure, and they want to be able to provide a seamless way of connecting to that in a secure fashion across that.
And that end-to-end perspective is what we're really focused on delivering. And it certainly includes and begins with the switching and the wireless environments within the campus, but it very much extends to the protection and the security protection that happens on the device, which we can deliver through Junos Pulse, as well as the different kinds of security that need to be enabled in every passage through the network as they go to the data centers that run the organization.
And this is really where that end-to-end security perspective that I think, for those of you who saw the presentation this morning Nawaf outlined in some detail, can really come together. In this space is a space where we're also making tremendous investments in our security portfolio to provide industry-leading manageability capabilities as well as the ability to do content and application security, which, again, we demonstrated this morning.
So we're thinking about this very holistically. And again, particularly for enterprises, we're able to have a different kind of conversation with our customers than we've had before. And as Kevin highlighted, the conversation with CIOs and CSOs is really about the fact that they want to make sure they have a choice in the market of who they turn to. And more and more of those customers are seeing Juniper as the obvious choice for them to go to as they want to deploy their next-generation systems and they seek a dual-vendor strategy.
Our end-to-end portfolio puts us in a unique position to have that conversation. And the fact that we're thinking about this in a way that really meets -- that comes from the customer perspective also enables us to be very differentiated.
And some of the key assets that we have play a key role. You mentioned Junos Space, a secure design, runs on top of Junos Space, the way we provisioned wireless networks will run on top of Junos Space.
We have Junos across all of our systems, right? So if you -- if the customer really cares about, and that's what the conversations that we've had with both our Go to Market team as well as the customer have proven out this kind of convergence, we think we have something valuable to offer from a differentiation point of view, and we have that end-to-end portfolio that they need across routing, switching, security and wireless. And that speaks to the heritage of Juniper.
We're not stitching a bunch of connect -- of products together that are loosely connected. We're focusing on how we can start with the customer and understand their business but then building on common platforms, things like Junos as a foundation and new areas in manageability like Junos Space to provide a unique end-to-end solution.
So this is early days for us, particularly in terms of the wireless business in the market, but we're starting to see some really encouraging success. Take the example of Mohegan Sun Casinos, right? So they are the second-largest casino in the U. And they became a strong believer in the Simply Connected vision. They started with MXs and EXs, and we're very happy to say that they replaced their wireless implementation from Aruba with our wireless implementation because they wanted to integrate the experience for their employees as they become productive and their customers in the casino setting, and we can deliver that with a Simply Connected vision.
Or the University of Wisconsin, which was traditionally an all-Cisco shop and has now seen the benefits they can get from this connected -- Simply Connected end-to-end architecture and has gone and purchased Juniper for that end-to-end solution.
So as we build -- as we expand in the enterprise sector, we think we have something very valuable to offer, and we look forward to the progress through that in the next coming years. So what we've done here is really done a pretty brief quick overview across 5 of the 7 domains.
We briefly mentioned wide area networking and consumer and business devices. But we think about these things in a very holistic perspective. And if you heard what we had to stay in Barcelona earlier this year, I hope you noticed that this is very consistent with what we said before. Stefan and I are working together with Gerri and her team as well as Mark and his team in the services side to drive consistent execution across all of these things.
We feel very strongly that we have the foundation and the strategy correct. We know what we need to do, we are targeting the right things, we have the right product line. The focus now is really to continue on the execution that we've established in the past year or 2. So on the systems side, it's about executing on growth with the PTX and driving the upgrades for T4K. On the Edge, it's about executing on the Universal Edge, continue to drive growth with the upgrades of the MX and the new software capabilities.
In the data center, it's about giving those QFX customers a great experience and continuing to take share in Ethernet switching.
And the campus, it's about Simply Connected. It's about putting wired and wireless together in a new way. So these are really things that we're executing on. We started the innovation some time ago, we've built the first set of product. Now it's all about making it count. The next domain that we're tackling, of course, is access and aggregation, and there we look forward to introducing the ACX to the market in Q3 and driving the first sets of success there. And we have a strong business in security with a strong product line.
And as we move forward and focus in on the enterprise and content security, we see ourselves being able to expand that business. We're great with service providers today, we see ourselves being able to expand it and do more in the enterprise space. And of course, one of the things that we're focusing on doing is taking and building on our silicon and our platform assets. We have this combination of the Trio and the Express Chipsets that are highly unique in the industry.
We've built a set of unique platforms on top of that, and we can augment that with a broad set of services that provide the customers with the value they need in the domain that they're caring about. Juniper is in a unique position. We feel very -- we feel like we've got an incredible product portfolio that includes some very strong products like the MX and the T Series that have been with us for a number of years.
We have a whole set of new products that have been introduced or will be introduced in the months ahead. As is always the case, these -- we're talking to enterprises and service providers. Those new products take time to roll out, but -- and take time for customers to evaluate, but we see the potential for them to make a massive difference in the months and years ahead.
As Kevin mentioned, we're driven by product cycles. We're excited about the next product cycle. It's the biggest one that we've ever encountered as a company.
We're making sure that we plumb things end to end and have -- to really deliver value to our customers, and that's certainly what we're partnering with our Go to Market team on.
Yes, the partnership between Gerri's team and Stefan and myself has never been stronger, and, again, I think it begins with the customer and focusing on understanding what they need. At the same time, it's really important that we continue to lead in innovation, both in terms of our products but also in terms of broad trends that are happening in the industry.
And here, what we're doing in software-defined networking is very, very important. The industry is looking at this. Juniper has been building on top of our history in programmability for a number of years.
And the industry overall is looking at how the network and programmability can be very important and the role that software can play in that programmability. And given this new trend and given some of the things that are happening there, we thought it'd be useful for Pradeep Sindhu to take you through and give you a Chalk Talk on some of our ideas around software-defined networking and how we think it will shape the industry and in the long run provide Juniper with a strong set of competitive advantage in the years to come.
So I invite Pradeep up to join -- to come on stage and talk about that. Thank you, Bob, and good afternoon. What I thought I'd do today is talk about software-defined networks. There's been a lot of industry interest in software-defined networks. And what I'd like to do is start with the observation that in October , when we launched the New Network, we actually talked about 3 goals that the New Network had: number one was to increase the rate of innovation; number two was decrease OpEx for our customers through automation; and number three was to decrease CapEx for our customers through the best use of technology.
If you now roll forward to -- by the way, in , the term SDN did not exist. You roll forward to and you ask the question about what are the goals of SDN? It turns out that the goals are exactly the same, completely identical.
So the strategy that we've been on with the New Network was, in fact, an SDN strategy if you just apply the current fashionable term. What are software-defined networks and what is it not? There's a lot of confusion about that, and everybody has their own view about what SDN is.
It's something like cloud, right? Whenever a term becomes fashionable, lots of people have different interpretations. I'd like to give you our interpretation of what SDN is and what it's not. Second is it turns out that the concept of software-defined networks is relevant in some domains and not so relevant in other domains, and I want to take you through why that is the case so you get some idea about what we might focus on.
And as Bob mentioned, we believe that the data center domain is the most important one for SDN. A third question which many of you have in your minds, I'm sure, is, is SDN a threat or an opportunity for Juniper? Well, let me say it right up front. We see SDN as a very, very strong opportunity. It's not a threat. And then I'd like to take you through, like we do for everything else, we use a principle-based approach to solving problems. And so I'd like to take you through the 4 principles that we have behind our approach to SDN and then take you through some details of what we're actually doing.
So the first question is what is SDN? So what I'm going to do is draw you the simplest possible picture of a software-defined network up here. And that simplest possible picture consists of a piece of software, generally called a controller, and this controller runs on horizontally scalable x86 -- Intel x86 servers. There's also a network which is built with a bunch of networking nodes somehow connected to each other, et cetera. So this is a network. And the controller is, of course, connected to the network nodes using some kind of a control plane, some control connections.
And this interface, very importantly, between the controller and the network being controlled is intended to be an open standard interface. This piece is very, very important. And as I'll mention later, OpenFlow is one possible proposal for this being the open standard interface. Now when you look at this picture, you see these 3 elements: the controller, the interface and the network.
Well, first observation I'd make is that this network is -- there has to be a physical network that's being controlled. The network is built out of some form of nodes. All of the forwarding path of these network nodes is implemented inside these nodes. It's not implemented by the controller. So in general, if you look at the functionality in the network, you can break them down into 3 pieces: data path functions, which is moving packets; control functions, which is actually computing the tables that -- on the basis of which the forwarding is done; and the third part is the management of the network.
In general, data path functions remain in the network, management functions are always centralized and control functions can either go here or stay in the network. Now why did SDN happen? Well, it turns out that SDN is a recognition by the networking industry that not all problems can be solved by putting the functionality inside these network nodes, which are generally geographically distributed.
The very essence of a network is that these network elements are spread out over space. Maybe it's over a wide area, maybe it's inside a data center, but they're not all put in a small space.
So there's actually 2 trends: one is that not all functionality can be implemented in a distributed way. In fact, if you try to centralize a functionality, it can be implemented a lot better. And I'll give you 2 examples of that: one is if you want some statistics on a network, on how well it's working and so on, that functionality is actually much, much better implemented in a centralized way.
Another thing that is much better implemented in a centralized way is if I want to do network provisioning. Well, if I try to do that computation in a distributed manner, it turns out to be incomplete, a very, very hard problem to solve. And in fact, there's no optimal solution, or the optimal solution takes too much time.
So -- on the other hand, if I put it in the center, it's actually fairly straightforward to do it. So that's one trend. The second trend is that the IT industry, the broad industry has actually figured out ways to use massive amounts of horizontally scalable general-purpose compute power. And the kinds of things that this controller does can actually exploit that technology, which is now becoming generally available.
So those are the 2 trends. Now I'd ask you to notice that we had expressed an important principle back in with the New Network, and that principle was centralize what you can, distribute only what you must. And the reason we articulated that principle was because it's an important organizational principle for simplifying networks and, in fact, information technology in general. And so SDN or the fundamental architecture software-defined networks you can see is trying to centralize those pieces or those pieces of function that can be better performed in a centralized way, but leave the functions that are performed better in a distributed way down in the network.
So that, in a nutshell, is SDN. Now what I drew for you is a very, very simple picture. And like any simple picture, it's not a real picture. But as in any real installation, what you will find is that in almost every case, I'm going to end up having multiple controllers.
Because a single controller can't scale. Also -- so these controllers are going to have to talk each other. It's also the case that in any given installation, I don't just have the network, I have network and storage and computing. So I need a higher level of orchestration systems, so I'll need some northbound interfaces also.
So the picture that I drew is very simple, but in essence, it's correct if you abstract it out completely. Now the other very important point to note about this is that if I am running on every one of these nodes a different operating system, it actually makes it quite hard to write a controller that controls all these things. So we believe that the fact that all of our equipment runs Junos actually makes it much, much easier for us to do it compared to our competition.
So now let me talk about the tradeoffs between centralization and distribution. It turns out that you can see that almost all the discussion around SDN is going to be -- it's going to revolve around the topic of what functionality should I centralize and what functionality should I distribute. And so the thing that may not surprise you is that we've actually been here before. And so you all wonder how come we've been here before?
SDN is a new concept. It's just -- people announced it this year. Well, it turns out that we have been here before. So if you look at distribution versus centralization for the network, go back to the telephony network. This was a TDM network. And if you asked the question of how much of the functionality was centralized and how much was distributed, well, it was something like this.
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