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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark one)

JUNIPER NETWORKS, INC.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X]   No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2). Yes [X]   No [   ]

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $2,678,909,000 as of the end of the Registrant’s second fiscal quarter, (based on the closing price for the Common Stock on the NASDAQ National Market on June 30, 2003).

As of February 13, 2004 there were 395,436,000 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

As noted herein, the information called for by Part III is incorporated by reference to specified portions of the Registrant’s definitive proxy statement to be issued in conjunction with the Registrant’s 2004 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the Registrant’s fiscal year ended December 31, 2003.

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PART I

ITEM 1. Business

     Overview

     We design and sell products and services that together provide our customers with Internet Protocol (IP) network infrastructure solutions. Our solutions are incorporated into the global web of interconnected public and private networks across which a variety of media, including voice, video and data, travel to and from end users around the world. Our network infrastructure solutions enable service providers and other network-intensive businesses to support and deliver services and applications on a highly efficient and low cost integrated network. As a result, our customers, which include service providers, government organizations, cable operators, mobile operators, research and education institutions and network-intensive businesses, are able to convert networks that provide commoditized, best efforts services into more valuable assets that provide differentiation and value and increased reliability and security to end users, both corporate and residential.

     At the close of our fiscal year ended December 31, 2003, we had generated annual revenues of $701.4 million. We employed 1,553 employees as of December 31, 2003 and have conducted business in approximately 70 countries.

     We were incorporated in California in 1996 and reincorporated in Delaware in 1997. Our corporate headquarters is located in Sunnyvale, California. Our website address is www.juniper.net.

     The Juniper Networks Strategy

     Our objective and strategy is to transform the business of networking by converting bandwidth, which is a commodity, into a dependable, secure and highly valuable corporate asset. Our technological leadership and problem solving abilities combined with our experience and fundamental understanding of the requirements of high performance IP network infrastructure will help us in meeting our objectives. Key elements of our strategy are described below.

     Maintain and Extend Technology Leadership. Our application-specific integrated circuit (ASIC) technology, software and network-optimized product architecture have been key elements to establishing our technology leadership. We believe that these elements can be leveraged into future products we are currently developing. We intend to maintain and extend our technological leadership in the network infrastructure market through continued investment to enhance the feature richness of our products and to develop future differentiated offerings for our customers.

     Leverage Early Lead as Supplier of Purpose-Built Network Infrastructure. From inception we have focused on designing and building IP network infrastructure for service providers and network intensive businesses and have integrated purpose-built technology into a network optimized architecture that specifically meets our customers’ needs. We believe that many of these customers will deploy network infrastructure equipment from only a few vendors. The purpose-built advantages of our products provide us with a time-to-market lead, which is a critical advantage in gaining rapid penetration as one of these selected vendors. Once our products have been widely deployed in a customer’s network, we create a significant barrier to entry to potential competitors who do not currently offer commercially-viable next generation routing solutions.

     Be Strategic to Our Customers. In developing our solutions, we work very closely with customers to design and build a product specifically to meet their complex needs. Over time, we have expanded our understanding of the challenges facing these customers. That increased understanding has enabled us to subsequently design additional capabilities into our products. We believe our close relationships with, and constant feedback from, our customers have been key elements in our design wins and rapid deployment to date. We plan to continue to work very closely with our customers to implement enhancements to current products as well as to design future products that specifically meet their evolving needs.

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     Enable New IP-Based Services. Our platform enables network operators to build networks cost effectively and to offer new differentiated services for their customers more efficiently than conventional products. We believe that the delivery of IP-based services and applications, including web hosting, outsourced Internet and intranet services, outsourced enterprise applications and voice-over IP, will continue to grow and are cost-effectively enabled by our network infrastructure solutions.

     Establish and Develop Industry Partnerships. Our customers have diverse requirements, some of which our products satisfy. Our products are not intended to satisfy certain other requirements. Therefore we believe that it is important to build relationships with other industry leaders in a diverse set of networking technologies in order to fully support our customers’ requirements.

     Markets and Customers

     Our customers include network operators in and value added resellers that sell into the following markets:

Service Providers

     Supporting nearly every major service provider network in the world, our platforms are designed and built for the scale and dependability that service providers demand. Our IP infrastructure solutions benefit these customers by:

	•		Reducing capital and operational costs by running multiple services over the same network using our high density, highly reliable platforms;
	•		Promoting generation of additional revenue by enabling new services to be offered to new market segments based on our product capabilities; and
	•		Providing increased asset longevity and higher return on investment as their networks can scale to multi-terabit rates based on the capabilities of our platforms.

Government Organizations

     Our solutions provide the security, dependability, and performance required by leading government agencies, including the United States Department of Defense, intelligence and civilian agencies. Juniper Networks helps government agencies transform their networking infrastructure by:

	•		Delivering best-in-class network security without impacting performance or the ability to turn on additional services;
	•		Providing highly dependable (reliable, available, and stable) products to ensure that government networks are operational and available;
	•		Offering flexible and comprehensive service and support packages designed for federal customers; and
	•		Working as a business partner for the long term with the optimal combination of flexibility, responsiveness, technical know-how and financial strength.

Cable Operators

     Our solutions can enable cable operators to migrate their business model and systems from a flat rate Internet access offering to delivery of rich, pay-per-use content. Our platforms enable cable operators to enhance profitability by:

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	•		Enabling cable providers to use a single, cost-effective network to generate additional revenue and profit in key markets;
	•		Increasing customer satisfaction, while lowering costs, by enabling consumers to self-select automatically provisioned service packages that provide the quality, speed and pricing they desire; and
	•		Enabling operators to profitably package high performance, two-way, high-speed services and network-based security solutions for telecommuters, small businesses and small offices.

Mobile Operators

     We play a leadership role as the mobile industry transforms into a business environment in which many interactive voice and data services are supported over a single, cost-efficient infrastructure. Mobile providers are improving existing business models with our solutions by:

	•		Achieving a lower cost of ownership and better operational scale in their networks;
	•		Facilitating a cost effective migration path from traditional networks to a single IP network;
	•		Reducing implementation costs and timelines through our partnerships with leading system integrators, which deliver integrated total solutions, with full service and support; and
	•		Creating and delivering new offerings and enhancing the revenue potential of existing services.

Research and Education Institutions

     Research and education (R&E) networks push the envelope in networking and applications, continually demanding the most advanced products and technologies while simultaneously helping shape their development. These networks help academic researchers and educators transform their vision into reality with scientific and educational advancements using applications such as telemedicine, 3D visualization and simulation, grid computing, and collaborative videoconferencing. Our products are deployed in R&E institutions and networks worldwide and further those institutions goals by providing:

	•		High performance, reliable platforms for leading-edge scientific and educational applications; and
	•		Advanced capabilities including IPv6, multicast, and packet filtering while maintaining high performance.

Network-Intensive Businesses

     Our solutions are designed to meet the reliability and scalability demanded by the world’s largest and most advanced networks. For this reason, information intensive enterprises that rely on their networks for the essence of their business are able to deploy our solutions as a powerful component in delivering the advanced network capabilities needed for their leading-edge applications while:

	•		Reducing costs through operational efficiencies in implementing and managing the network;
	•		Driving down capital expenses with sophisticated network intelligence that is robust, secure and scalable; and
	•		Providing enterprises with the control necessary to deliver an assured user experience to their customers and internal clients.

     Fundamental Requirements for High Performance, Low Cost Integrated Networks

     As they work to support dramatic growth in IP traffic and seek to offer new revenue generating or mission-critical services, service providers, government organizations, cable operators, mobile operators and network-intensive businesses require network

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infrastructure equipment that is not only feature rich but also delivers high reliability and performance. Feature richness, high reliability, high performance, security, scalability, interoperability, and cost effectiveness are each fundamental requirements in meeting the needs associated with the growth in IP traffic and the efficient delivery of value-added services to end users.

     Feature Richness. The importance of increasing revenue streams and decreasing capital and operational costs for our customers is a significant priority in the industry. Customers want to sell more revenue generating services with better cost efficiencies, which is ultimately a function of the features and capabilities that can be provided on each of the network elements. Most of the feature richness evolves in software and as the networks advance, more and more features are required to sell new services as well as to lower the ongoing costs of operating the network. Next generation routers therefore need to have flexibility to add new capabilities frequently without compromising the performance of the system, which gets increasingly difficult as the network demands increase.

     High Reliability. As businesses and consumers increasingly rely on IP networks for mission-critical applications, high network reliability is essential. As a result, those businesses and consumers expect service providers to deliver a high degree of reliability in their networks.

     High Performance Without Compromising Intelligence. To handle the rapid growth in IP traffic, today’s network operators increasingly require network infrastructure that can operate at higher speeds, while still delivering real-time services such as security and quality-of-service features. The processing of data packets at these high speeds requires sophisticated forwarding technology to inspect each packet and assign it to a destination based on priority, data type and other considerations. Since a large number of IP packets, many of which perform critical administrative functions, are small in size, high performance IP routers need to achieve their specified transmission speeds even for small packet sizes. Since smaller packets increase packet processing demands, routing large numbers of smaller packets tends to be more resource intensive than routing of larger packets. A wire speed router, which achieves its specified transmission rate for any type of traffic passing through it, can accomplish this task. Thus, provisioning of mission-critical services increasingly requires the high performance enabled by wire speed processing.

     High Performance Under Stressful Conditions. In a large and complex network, individual components inevitably fail. However, the failure of an individual device or link must not compromise the network as a whole. In a typical network, when a failure occurs, the network loses some degree of capacity and, in turn, a greater load falls on the remaining network routers, which must provide alternate routes. IP infrastructure must quickly adjust to the new state of the network to maintain packet forwarding rates and avoid dropping significant numbers of packets when active routes are lost or when large numbers of routes change. Routing protocols are used to accomplish this convergence, a process that places even greater stress on the router. Given the complexity of IP network infrastructure, the convergence process is far more complex and places a far greater load on the routing software, thereby requiring a much more sophisticated device.

     Security. There are more and more issues everyday regarding network security ranging from simple denial of service attacks to sophisticated, pervasive and malicious intrusions. The challenge of security is increasing in awareness within all of our customers and we are continually improving and evolving the security capabilities on product solutions. It is extremely important to provide comprehensive network-based security services that are fully integrated, free of performance trade-offs and scaled to any customer or market.

     Scalability. Due to the rapid growth in IP traffic, service providers must continuously expand their networks, both in terms of increased numbers of access points of presence (PoPs), and also greater capacity per PoP. To facilitate this expansion process, network infrastructure equipment must be highly scalable. Next generation routers therefore need to be flexible and configurable to function within constantly changing networks while incurring minimal downtime.

     Interoperability. In order to gain acceptance in IP networks, new products must be compatible with the existing network environment. Given the open and inter-connected nature of the public network infrastructure, service providers, government organizations, cable operators, mobile operators and network-intensive businesses must control and police traffic on their

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networks. As a result, the operating system in each router must offer 100% compatibility with the interior protocols and standards used within each network. The compatibility level must be maintained despite changes to equipment configuration and network architecture and upgrades to the various protocol standards. Thus, the operating system must be flexible to support any necessary revisions. This level of compatibility, in turn, cannot impact the performance, scalability or reliability of the equipment. Attaining this sophisticated level of interoperability is highly challenging and requires significant testing to ensure compatibility.

     High Return on Investment in Network Infrastructure. Continued growth in IP traffic, price competition in the telecommunications market and increasing pressure for network operators to attain higher returns on their network infrastructure investments all contribute to our customers’ desire for solutions that significantly reduce the capital expenditures required to build and operate their networks. In addition to the basic cost of equipment, network operators incur substantial ancillary costs for the space required to deploy the equipment, power consumed and ongoing operation and maintenance of the equipment. Network operators therefore want to deploy dense and varied equipment configurations in limited amounts of rack and floor space. Therefore, in order to continue to scale their networks toward higher data speeds in a cost effective manner, network operators need the ability to mix and match easily many different speed connections at appropriate densities, without significantly increasing the consumption of space or power and driving costs higher.

     These requirements define a clear need for IP infrastructure solutions that can support high speeds and offer new IP-based services. At the same time, network operators are eagerly seeking new solutions that increase the level of scalability and reliability within their networks and reduce the cost of their architectures.

     Juniper Networks Technology and Products

     Early in the Company’s history, we developed, marketed and sold the first commercially available purpose-built IP backbone router optimized for the specific high performance needs of service providers. As the need for core bandwidth continued to increase, the need for service rich platforms at the edge of the network was created. Our products are designed to address the needs at the core and the edge of the network as well as for wireless and cable access by combining high-performance packet forwarding technology and rich software into a network-optimized solution.

     Today, as then, our technology is built upon our router architecture, ASIC and software expertise. Our products offer a full suite of scalable, tested routing protocols, which are used to control and direct network traffic, and are critical to a network routing solution. This control is made more important by the fact that the size and complexity of IP networks are increasing at a time when service providers are looking to differentiate themselves through value-added service offerings.

     General Product Architecture

     We believe that an overview of the physical nature of our products is helpful in understanding the operation of our business.

     Although specific designs vary among our product families, our platforms are essentially modular, with the chassis serving as the base of the platform. The chassis contains components that enable and support many of the fundamental functions of the router, such as power supplies, cooling fans, and components that run our JUNOS or JUNOSe operating system, perform high-speed packet forwarding, or keep track of the structure of the network and instruct the packet forwarding components where to send packets. Each chassis has a certain number of slots that are available to be populated with components we refer to as modules or interfaces.

     The modules are the components through which the router receives incoming packets of data from the network over a variety of transmission media. The physical connection between a transmission medium and a module is referred to as a port. The number of ports on a module varies widely depending on the functionality and throughput offered by the module. In some cases, modules do not contain ports

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or physically receive packets from the network, but rather enhance the overall functionality of the router. We refer to these components as service modules.

     Product Families

     M-Series and T-Series: Our M-series platforms are extremely versatile as they can be deployed at the edge of operator networks, in small and medium core networks, and in other applications. The M-series product family includes the M5, M7i, M10, M10i, M20, M40e, M160 and M320 platforms. Our T-series platforms, T320 and T640, are primarily designed for core IP infrastructures. The M-series and T-series products leverage our ASIC technology and the same JUNOS operating system to ensure continuous and predictable service delivery, while reducing capital and operational costs.

     E-Series: Our E-series products are a full featured platform with support for carrier-class routing, broadband subscriber management services and a comprehensive set of IP services. The E-series family includes the ERX-310, ERX-705, ERX-710, ERX-1410, and ERX-1440 platforms. Leveraging our JUNOSe operating system, the E-Series service delivery architecture enables service providers to easily deploy innovative revenue generating services to their customers and avoid the costly and limiting piecemeal outcomes that result from equipment that delivers inconsistent edge services. All E-Series platforms offer a full suite of routing protocols and provide scalable capacity for tens of thousands of users.

     J-20: Our J-20 product, developed together with Ericsson A.B., provides a scalable solution for wireless networks and supports wireless operators in their evolution from voice-centric networks to the new multimedia-rich networks.

     Sales, Marketing and Distribution Structure

     As of December 31, 2003, the Company employed a staff of 434 employees in our worldwide sales and marketing organizations. These sales employees operate within their respective regions and generally either engage customers directly or manage customer opportunities through our strategic distribution relationships and value-added resellers. Information concerning our revenues by significant customers and by geographic region can be found in Note 2 and Note 12 to the Consolidated Financial Statements included within this Annual Report on Form 10-K.

     Direct Sales Structure

     Our direct sales organization is organized according to theater and within each theater according to the particular needs in that market. For example, currently the Americas sales theater is organized into three geographic areas and two vertical markets. In addition, within the US geographic areas, the major incumbent carriers are assigned dedicated account teams that operate separately from the territory teams. The Asia-Pacific sales theater is organized into four geographic areas, while the EMEA sales theater is organized into six major account teams, and geographic teams covering all activity outside of the major accounts.

     Our direct relationships with our customers are generally governed either by customer purchase orders and our acknowledgement of those orders or by purchase contracts. In instances where we have contracts with our customer, those contracts set forth only general terms of sale and do not require customers to purchase specified quantities of our products.

     Global Channel System

     In our sales and marketing efforts, we also employ a global network of strategic distribution relationships as well as theater or country-specific value added resellers. Within each theater, in addition to our direct sales force, we employ sales professionals to assist with the management of our various channel partners.

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     We have strategic distribution relationships with Ericsson A.B., Lucent Technologies and Siemens A.G. We believe that each of these companies have significant customer relationships in place and offer products that complement our product offerings. Our arrangements with each of these partners allow them to distribute our products on a worldwide, non-exclusive basis, provide for discounts based upon the volume of products sold and specify other general terms of sale. The agreements do not require these partners to purchase specified quantities of our products. Each of Ericsson and Siemens accounted for greater than 10% of our total revenues in 2003.

     In addition to these strategic distribution relationships, the Company maintains relationships with value-added resellers in various theaters. These resellers tend to be focused on particular theaters or particular countries within theaters. These resellers have expertise in deploying complex network infrastructure in their respective markets. Our agreements with these resellers are non-exclusive, generally limited by theater, and provide volume-based discounts and other ordinary terms of sale. These agreements do not require resellers to purchase specified quantities of our products.

     Customer Service and Support

     We believe that a broad range of support services is essential to the successful deployment and ongoing support of our products and we have hired support engineers with proven network experience to provide those services. In most cases, our customer service and support organization provides front line product support and is the problem resolution interface to our partners and direct end users. We offer the following services: 24x7x365 technical assistance, hardware repair and replacement, professional services and educational services. We deliver these services directly to major end users and also utilize a multi-tiered support model, leveraging the capabilities of our partners and third party organizations. We also train our partners in the delivery of education and support services.

     As of December 31, 2003, we employed 190 people in our worldwide customer service and support organization.

     Research and Development

     We have assembled a team of skilled engineers with extensive experience in the fields of high-end computing, network system design, routing protocols and embedded software. These individuals have been drawn from leading computer data networking and telecommunications companies. In addition to building complex hardware and software systems, the engineering team has experience in delivering highly integrated ASICs and scalable technology.

     We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applications, incorporating that technology and maintaining the competitiveness of our product and service offerings. We are leveraging our ASIC technology, developing additional network interfaces targeted to our customer applications and continuing to develop next generation technology to support the anticipated growth in IP network requirements. We continue to expand the functionality of our products to improve performance and scalability, and to provide an enhanced user interface.

     Our research and development process is driven by the availability of new technology, market demand and customer feedback. We have invested significant time and resources in creating a structured process for all product development projects. This process involves all functional groups and all levels within the Company. Following an assessment of market demand, our research and development team develops a full set of comprehensive functional product specifications based on inputs from the product management and sales organizations. This process is designed to provide a framework for defining and addressing the steps, tasks and activities required to bring product concepts and development projects to market.

     As of December 31, 2003, we employed 669 people in our worldwide research and development organization.

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     Our research and development expenses totaled $176.1 million, $161.9 million and $155.5 million for the years ended December 31, 2003, 2002 and 2001, respectively.

     Manufacturing

     Our manufacturing operation is outsourced. We currently have manufacturing relationships with Celestica and Plexus, under which we have subcontracted our manufacturing activity. This subcontracting activity extends from prototypes to full production and includes activities such as material procurement, final assembly, test, control, shipment to our customers and repairs. We design, specify and monitor all of the tests that are required to meet internal and external quality standards. These arrangements provide us with the following benefits:

	•		we conserve the working capital that would be required for funding inventory;
	•		we can adjust manufacturing volumes quickly to meet changes in demand;
	•		we can quickly deliver products to customers with turnkey manufacturing and drop shipment capabilities;
	•		we gain economies of scale because, by purchasing large quantities of common components, our contract manufacturers obtain more favorable pricing than we could buying components alone; and
	•		we operate without dedicating significant space to manufacturing operations.

     Our contract manufacturers manufacture our products based on rolling forecasts from us about our product needs. Each of the contract manufacturers procure components necessary to assemble the products in our forecast and test the products according to our specifications. Products are then shipped directly to our customers. The Company is not the owner of any of the components and our customers generally take title to our products upon shipment from the contract manufacturers. In certain circumstances, we may be liable to our contract manufacturers for carrying and obsolete material charges for excess components purchased based on our forecasts.

     Although we have contracts with our contract manufacturers, those contracts merely set forth a framework within which the contract manufacturer may accept purchase orders from us. The contracts do not require them to accept purchase orders from us or to manufacture our products, on a long-term basis.

     Our ASICs are manufactured by IBM who is responsible for all aspects of the production of the ASICs using our proprietary designs.

     Competition

     Competition in the network infrastructure market is intense. Cisco Systems, Inc. (“Cisco”) has historically dominated the market, with other companies such as Nortel Networks and Alcatel S.A. providing products to a smaller segment of the market. In addition, a number of public and private companies have announced plans for new products to address the same needs that our products address.

     Cisco traditionally has been the dominant supplier of solutions to our markets. We believe this is the result of its early leadership position in the enterprise router market. As both large public and private networks and traffic over the Internet has grown rapidly, Cisco has leveraged this position and has developed a broad product line of routers that support all major local area and wide area interfaces. We believe that our ability to compete with Cisco depends upon our ability to demonstrate that our products are superior in meeting the needs of our current and potential customers and are extremely compatible with Cisco’s current and future products. Although we believe that we are currently among the top providers of IP infrastructure solutions worldwide, we cannot assure you that we will be able to compete successfully with Cisco, currently the leading provider in this market.

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     We expect that, over time, large companies with significant resources, technical expertise, market experience, customer relationships and broad product lines, such as Nortel and Alcatel, will introduce new products which are designed to compete more effectively in this market. As a result, we expect to face increased competition in the future from larger companies with significantly more resources than we have. Although we believe that our technology and the purpose-built features of our products make them unique and will enable us to compete effectively with these companies, we cannot assure you that we will be successful.

     Many of our current and potential competitors, such as Cisco, Nortel and Alcatel, have significantly broader product lines than we do and may bundle their products with other networking products in a manner that may discourage customers from purchasing our products. Also, many of our current and potential competitors have greater name recognition and more extensive customer bases that could be leveraged. Increased competition could result in price reduction, fewer customer orders, reduced gross margins and loss of market share, any of which could seriously harm our operating results.

     There are also many small public and private companies that claim to have products with greater capabilities than our products. Consolidation in this industry has begun, with one or more of these smaller private companies being acquired by large, established suppliers of network infrastructure products, and we believe it is likely to continue. As a result, we expect to face increased competition in the future from larger companies with significantly more resources than we have.

     Several companies also provide solutions that can substitute for some uses of routers. For example, high bandwidth Asynchronous Transfer Mode (“ATM”) switches are used in the core of certain major backbone service providers. ATM switches can carry a variety of traffic types, including voice, video and data, using fixed, 53 byte cells. Companies that use ATM switches are enhancing their products with new software technologies such as Multi-Protocol Label Switching (“MPLS”), which can potentially simplify the task of mixing routers and switches in the same network. These substitutes can reduce the need for large numbers of routers.

     Intellectual Property

     Our success and ability to compete are substantially dependent upon our internally developed technology and know-how. Our engineering teams have significant expertise in ASIC design and we own all rights to the design of the ASICs, which form the core of many of our products. Our software was developed internally and is protected by United States and other copyright laws. We currently have 30 issued U.S. patents expiring between 2016 and 2021.

     While we rely on patent, copyright, trade secret and trademark law to protect our technology, we also believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance are essential to establishing and maintaining a technology leadership position. There can be no assurance that others will not develop technologies that are similar or superior to our technology.

     Our success will depend upon our ability to obtain necessary intellectual property rights and protect our intellectual property rights. While we have filed patent applications, we cannot be certain that these applications will issue into patents, that we will be able to obtain the necessary intellectual property rights or that other parties will not contest our intellectual property rights.

     Employees

     As of December 31, 2003, we had 1,553 full-time employees, 260 of whom were in finance, administration, IT and operations. None of our employees are represented by a labor union. We have not experienced any work stoppages and we consider our relations with our employees to be good.

     Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel, none of whom is bound by an employment agreement requiring service for any defined period of time. The loss of the services of one or more of our key employees could have a material adverse effect on our business, financial condition and results of operations. Our

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future success also depends on our continuing ability to attract, train and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and there can be no assurance that we can retain our key personnel in the future.

     Available Information

     We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC electronically. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

     You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the day of filing with the SEC on our website at http://www.juniper.net, by contacting the Investor Relations Department at our corporate offices by calling (888) 586-4737 or by sending an e-mail message to investor-relations@juniper.net.

ITEM 2. Properties

     Our corporate headquarters is located in Sunnyvale, California and consists of three buildings totaling approximately 424,825 square feet. Each building is on an individual lease, and provides various option, expansion and extension provisions. The Building #1 (144,315 square feet) lease expires on June 30, 2012, the Building #2 (122,435 square feet) lease expires on February 14, 2013 and the Building #3 (158,075 square feet) lease expires on May 31, 2014. We also own approximately 80 acres of land adjacent to our leased corporate headquarters location.

     Additionally, we lease an approximately 225,000 square foot facility in Westford, Massachusetts under two leases. The leases expire in the first quarter of 2011. We also lease various offices throughout the United States, Canada, South America, Europe, the Middle East and the Asia Pacific region. Larger offices are located in Virginia, Colorado, Canada, the United Kingdom, France, The Netherlands, Hong Kong, China, Korea, Japan and Australia. Our current offices are in good condition and appropriately support our business needs.

ITEM 3. Legal Proceedings

     The Company is subject to legal claims and litigation arising in the ordinary course of business, including the matters described below. The outcome of these matters is currently not determinable. However, the Company does not expect that such legal claims and litigation will ultimately have a material adverse effect on the Company’s consolidated financial position or results of operations.

     IPO Allocation Case

     In December 2001, a class action complaint was filed in the United States District Court for the Southern District of New York against the Goldman Sachs Group, Inc., Credit Suisse First Boston Corporation, FleetBoston Robertson Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase (Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc., Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated (collectively, the “Underwriters”), the Company and certain of the Company’s officers. This action was brought on behalf of purchasers of the Company’s common stock in the Company’s initial public offering in June 1999 and its secondary offering in September 1999.

     Specifically, among other things, this complaint alleged that the prospectus pursuant to which shares of common stock were sold in the Company’s initial public offering and its subsequent secondary offering contained certain false and misleading statements or omissions regarding the practices of the

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Underwriters with respect to their allocation of shares of common stock in these offerings and their receipt of commissions from customers related to such allocations. Various plaintiffs have filed actions asserting similar allegations concerning the initial public offerings of approximately 300 other issuers. These various cases pending in the Southern District of New York have been coordinated for pretrial proceedings as In re Initial Public Offering Securities Litigation, 21 MC 92. In April 2002, plaintiffs filed a consolidated amended complaint in the action against the Company, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Defendants in the coordinated proceeding filed motions to dismiss. In October 2002, the Company’s officers were dismissed from the case without prejudice pursuant to a stipulation. On February 19, 2003, the Court granted in part and denied in part the motion to dismiss, but declined to dismiss the claims against the Company. A proposal has been made for the settlement and release of claims against the issuer defendants, including the Company. The settlement is subject to a number of conditions, including approval of the proposed settling parties and the court. If the settlement does not occur, and litigation against the Company continues, the Company believes it has meritorious defenses and intends to defend the case vigorously.

     Federal Securities Class Action Suit

     During the quarter ended March 31, 2002, a number of essentially identical shareholder class action lawsuits were filed in the United States District Court for the Northern District of California against the Company and certain of its officers and former officers purportedly on behalf of those stockholders who purchased the Company’s publicly traded securities between April 12, 2001 and June 7, 2001. In April 2002, the judge granted the defendants’ motion to consolidate all of these actions into one; in May 2002, the court appointed the lead plaintiffs and approved their selection of lead counsel and an amended complaint was filed in July 2002. The plaintiffs allege that the defendants made false and misleading statements, assert claims for violations of the federal securities laws and seek unspecified compensatory damages and other relief. In September 2002, the defendants moved to dismiss the amended complaint. In March 2003, the judge granted defendants motion to dismiss with leave to amend. The plaintiffs filed their amended complaint in April 2003 and the defendants moved to dismiss the amended complaint in May 2003. The hearing on defendants’ motion to dismiss was held on September 12, 2003. The judge has not yet ruled on the motion. There has been no discovery to date and no trial is scheduled. The Company continues to believe the claims are without merit and intends to defend the action vigorously.

     State Derivative Claim Based on the Federal Securities Class Action Suit

     In August 2002, a consolidated amended shareholder derivative complaint purportedly filed on behalf of the Company, captioned In re Juniper Networks, Inc. Derivative Litigation, Civil Action No. CV 807146, was filed in the Superior Court of the State of California, County of Santa Clara. The complaint alleges that certain of the Company’s officers and directors breached their fiduciary duties to the Company by engaging in alleged wrongful conduct including conduct complained of in the securities litigation described above. The complaint also asserts claims against a Juniper Networks investor. The Company is named solely as a nominal defendant against whom the plaintiff seeks no recovery. In October 2002, the Company as a nominal defendant and the individual defendants filed demurrers to the consolidated amended shareholder derivative complaint. In March 2003, the judge sustained defendants’ demurrers with leave to amend. The plaintiffs lodged their amended complaint in May 2003 and the defendants demurred to the amended complaint and moved to stay the consolidated action pending resolution of the federal action. On August 25, 2003, the Court sustained defendants’ demurrer with leave to amend and denied the motion to stay without prejudice. Plaintiffs’ third amended complaint is due February 24, 2004. There has been limited discovery to date and no trial is scheduled. The Company continues to believe the claims are without merit and intends to defend the action vigorously.

     Toshiba Patent Infringement Litigation

     On November 13, 2003, Toshiba Corporation filed suit in the United States District Court in Delaware against the Company, alleging that certain products infringe four Toshiba patents, and seeking an injunction and unspecified damages. The Company believes that it has meritorious defenses to the claims and intends to defend the suit vigorously.

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ITEM 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following sets forth certain information regarding our executive officers as of December 31, 2003.

     SCOTT KRIENS has served as President, Chief Executive Officer and Chairman of the board of directors of Juniper Networks since October 1996. From April 1986 to January 1996, Mr. Kriens served as Vice President of Sales and Vice President of Operations at StrataCom, Inc., a telecommunications equipment company, which he co-founded in 1986. Mr. Kriens received a B.A. in Economics from California State University, Hayward. Mr. Kriens also serves on the board of directors of Equinix, Inc. and Verisign, Inc.

     PRADEEP SINDHU co-founded Juniper Networks in February 1996 and served as Chief Executive Officer and Chairman of the board of directors until September 1996. Since then, Dr. Sindhu has served as Vice Chairman of the board of directors and Chief Technical Officer of Juniper Networks. From September 1984 to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and from March 1987 to February 1996, as the Principal Scientist, and from February 1994 to February 1996, as Distinguished Engineer at the Computer Science Lab, Xerox Corporation, Palo Alto Research Center, a technology research center. Dr. Sindhu holds a B.S.E.E. from the Indian Institute of Technology in Kanpur, an M.S.E.E. from the University of Hawaii and a Masters in Computer Science and Ph.D. in Computer Science from Carnegie-Mellon University.

     JAMES A. DOLCE, JR. joined Juniper Networks as Executive Vice President Field Operations in July 2002 as part of our acquisition of Unisphere Networks, Inc. He served as Chief Executive Officer and a director of Unisphere from July 2000 until July 2002. From January 2000 to July 2000, Mr. Dolce served as President of Unisphere. From April 1999 to January 2000, Mr. Dolce served as Vice President of the Data Products Group of Unisphere. From September 1997 to April 1999, he served as President of Redstone Communications, which he co-founded. From May 1996 to July 1997, Mr. Dolce served as Vice President and General Manager of the Remote Access Business Unit of Cascade Communications, a provider of wide area network switches.

     MARCEL GANI joined Juniper Networks as Chief Financial Officer in February 1997 and became Executive Vice President and Chief Financial Officer in July 2002. From January 1996 to January 1997, Mr. Gani served as Vice President and Chief Financial Officer of NVIDIA Corporation, a 3D graphic processor company. Mr. Gani also held the positions of Vice President and Chief Financial Officer at Grand Junction Networks, a data networking company acquired by Cisco Systems, Inc., from March 1995 to January 1996, and at Primary Access Corporation, a data networking company acquired by 3Com Corporation, from March 1993 to March 1995. Mr. Gani holds an M.B.A. from the University of Michigan. Mr. Gani also serves on the board of directors of the Chalone Wine Group.

     ASHOK KRISHNAMURTHI joined Juniper Networks in 1996 and has served as Executive Vice President, Engineering since September 2003. Mr. Krishnamurthi served as Director of Engineering from May 1999 to June 2000, as Vice President, Hardware Engineering from June 2000 to January 2002, and as Vice President, Engineering from January 2002 to September 2003. Mr. Krishnamurthi holds a B.E. from the Manipal Institute of Technology and a M.S. from Syracuse University.

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PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     Our common stock has been quoted on the NASDAQ National Market under the symbol “JNPR” since June 25, 1999. Prior to that time, there was no public market for the common stock. All stock information has been adjusted to reflect the three-for-one split, effected in the form of a stock dividend to each stockholder of record as of December 31, 1999 and a two-for-one split, effected in the form of a stock dividend to each stockholder of record as of May 15, 2000. Juniper Networks has never paid cash dividends on its common stock and has no present plans to do so. There were approximately 1,520 stockholders of record at January 31, 2004. The following table sets forth the high and low closing bid prices as reported on NASDAQ:

ITEM 6. Selected Consolidated Financial Data

     The following selected consolidated financial data should be read in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto in Item 8 “Financial Statements and Supplementary Data.”

     The information presented below reflects the impact of several accounting pronouncements, which makes a direct comparison between 2003, 2002 and 2001 difficult. For example, in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations,” we have only included revenue, cost of revenues and operating expenses from Unisphere Networks, Inc., which was acquired in July 2002, for the second half of 2002. The results for 2003 include a full year of results for the combined companies. Also, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we ceased amortizing goodwill at the beginning of 2002. Furthermore, we issued and redeemed material amounts of debt securities and we issued material amounts of equity securities in connection with business combination transactions during the periods presented below. For a complete description of matters affecting the results in the tables below, see Note 4 “Long-Term Debt,” Note 5 “Acquisitions” and Note 6 “Goodwill and Purchased Intangible Assets” of Notes to the Consolidated Financial Statements in Item 8.

Consolidated Statement of Operations Data (in thousands, except per share amounts)

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Consolidated Balance Sheet Data (in thousands)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This Annual Report on Form 10-K (“Report”), including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as ’expects,’ ‘anticipates,’ ‘targets,’ ‘goals,’ ‘projects,’ ‘intends,’ ‘plans,’ ’believes,’ ‘seeks,’ ‘estimates,’ variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled “Risk Factors” and elsewhere, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), specifically the most recent reports on Form 10-Q, each as it may be amended from time to time. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

     The following discussion is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. On an on-going basis, we evaluate our estimates, including those related to sales returns, warranty costs, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, contract manufacturer exposures for carrying and obsolete material charges, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     Overview of the Business

     Juniper Networks, Inc. (“Juniper Networks” or “we”) was founded in 1996 to develop and sell products that would be able to meet the stringent demands of service providers. Today, we are a leading provider of network infrastructure solutions that transform the business of networking. Our products enable customers to improve their business models by providing more differentiation and value to end users as well as increased reliability and security, thereby making the network a more valuable asset. We sell and market our products through our direct sales organization and value-added resellers.

     Overview of the Results of Operations

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     To aid in understanding our operating results for the years ended December 31, 2003, 2002 and 2001, we believe an overview of the significant events that occurred during those years and a discussion of the nature of the expenses is helpful.

     Significant Events

     As a result of an economic slowdown beginning in 2001 and going into 2003, many telecommunication service providers cut back capital expenditure and discretionary spending budgets. These cut backs contributed to the decrease in our revenues beginning in late 2001 and through 2002.

     To help combat the financial impact of the reduction in revenue, we undertook a series of initiatives. The first initiative was a restructuring in 2001 to better align our operations with the then current market and service provider industry conditions. This restructuring initiative included a worldwide workforce reduction, consolidation of excess facilities and restructuring of certain business functions.

     In July 2002, we completed our acquisition of Unisphere Networks, Inc. (“Unisphere”), a subsidiary of Siemens Corporation, which is a subsidiary of Siemens A.G. (“Siemens”). Unisphere developed, manufactured and sold data networking equipment optimized for applications at the edge of service provider networks. The acquisition enabled us to expand our customer base and add a complementary product to our existing product line without any need to reorganize or modify our existing organizational or cost structure. In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations,” we have included in our results of operations for 2002 the results of Unisphere from July 1, 2002. The Unisphere acquisition impacted revenue, cost of revenues and all operating expenses for the second half of 2002. The results for 2003 include a full year of results of the combined companies.

     In connection with the acquisition of Unisphere, we initiated plans to eliminate certain duplicative activities, focus on strategic product and customer bases, reduce cost structure and better align product and operating expenses with existing general economic conditions.

     In 2003, we announced that we were no longer developing our G-series CMTS products and recorded a one-time charge that was comprised of workforce reduction costs, non-inventory asset impairment, the costs associated with vacating facilities and terminating contracts and other related costs. We expect this action to facilitate the focus on core competencies and reduce cost structure.

     During the second calendar quarter of 2003, we issued $400.0 million of Zero Coupon Convertible Senior Notes due June 15, 2008. Also during 2003, we paid $792.0 million to retire a portion of the 4.75% Convertible Subordinated Notes due March 15, 2007. These transactions had an effect on our cash, cash equivalents, investments, interest income and interest expense.

     Nature of Expenses

     Most of our manufacturing, repair and supply chain management operations are outsourced to independent contract manufacturers; accordingly, most of our cost of revenues consists of payments to our independent contract manufacturers. The independent contract manufacturers manufacture our products using quality assurance programs and standards that we establish. Controls around manufacturing, engineering and documentation are conducted at our facilities in Sunnyvale, California and Westford, Massachusetts. Our independent contract manufacturers have facilities in Neenah, Wisconsin and Toronto, Canada. Generally, our contract manufacturers retain title to the underlying components and finished goods inventory until our customers take title to the assembled final product upon shipment from the contract manufacturer’s facility.

     We realized savings in carrying and obsolete material charges from 2001 to 2002 and through 2003. The contract manufacturers procure components based on our build forecasts and if actual component usage is significantly lower than our forecasts,

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we may be, and have been in the past, liable for carrying or obsolete material charges. During 2001, there was a large expense related to carrying and obsolete material due to the change in the global economy and the sudden decrease in product revenues. During the first half of 2002, the global economy continued to have an adverse effect on our revenues; however, it began to improve during the second half. In addition, as part of the Unisphere acquisition, we consolidated our outsourced contract manufacturing operations from three to two, and incurred additional carrying and obsolete material charges. Carrying and obsolete charges decreased during 2003 as the global economy and our product revenue continued to improve.

     The primary component of our operating expenses historically has been employee related costs, which includes items such as wages, commissions, bonuses, vacation, benefits and travel. In addition, the facility and information technology departmental costs are allocated to other departments based on headcount. Following are descriptions of the unique expense items in each operating expense class.

     We expense our research and development costs as they are incurred. Research and development expenses include the costs of developing our products from components to prototypes to finished products, outside services for such services as certifications of new products, equipment used for testing and patent related costs. Several components of our research and development effort require significant expenditures, such as the development of new components and the purchase of prototype equipment, the timing of which can cause quarterly variability in our expenses.

     Sales and marketing expenses include costs for promoting our products and services, demonstration equipment and advertisements. These costs can vary quarter-to-quarter depending on revenues, product launches and marketing initiatives.

     In addition to employee related expenses, general and administrative expenses include professional fees, bad debt provisions and other corporate expenses. Professional fees include legal, audit, tax, accounting and corporate strategic services.

     Critical Accounting Policies

     The preparation of the consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These policies include:

	•		revenue recognition;
	•		the allowance for doubtful accounts, which impacts general and administrative expenses;
	•		the valuation of exposures associated with the contract manufacturing operations and estimating future warranty costs, both of which impact cost of product revenues and gross margins; and
	•		the provision of income taxes, which would impact our income tax expense.

     We have other important accounting policies and practices. However, once adopted, these other policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy and not a judgment as to the policy itself. We base our estimates on our historical experience and also on assumptions that we believe are standard and reasonable. Despite our intention to establish accurate estimates and assumptions, actual results could differ from those estimates.

     Revenue Recognition

     We recognize product revenue when persuasive

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evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is reasonably assured, unless we have future obligations for such things as network interoperability or customer acceptance, in which case revenue and related costs are deferred until those obligations are met. In most cases, we recognize product revenue upon shipment to our customers, including resellers, as it is our policy to ensure an end user has been identified prior to shipment. Service revenue is recognized as the services are completed or ratably over the service period.

     Beginning July 1, 2003, we recognized revenue on arrangements where products and services were bundled in accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” In applying the concepts of EITF 00-21, we must determine whether the deliverables are separable into multiple units of accounting. We allocate the total fee on such arrangements to the individual deliverables either based on their relative fair values or using the residual method, as circumstances dictate. We then recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition. The application of EITF 00-21 includes judgments whether the delivered item has value to the customer on a standalone basis and whether we have established objective and reliable evidence of fair value for the undelivered items. Our ability to recognize revenue in the future may be affected if actual selling prices are significantly less than the fair values. In addition, our ability to recognize revenue in the future will be impacted by conditions imposed by our customers and by our assessment of collectibility. We assess the probability of collection by reviewing our customers’ payment history, financial condition and credit report. If the probability of collection is not reasonably assured, revenue is deferred until the payment is collected.

     The amount of product revenue recognized in a given period is also impacted by our judgments made in establishing our reserve for potential future product returns. Although our arrangements do not include any contractual rights of return, and our general policy is that we do not accept returns, under unique circumstances we have and may in the future accept product returns from our customers. Therefore, we do provide a reserve for our estimate of future returns against revenue in the period the revenue is recorded. Our estimate of future returns is based on such factors as historical return data and current economic condition of our customer base. In addition, we get input from our sales and support organizations on potential product returns relating to specific customer issues. The amount of revenue we recognize will be directly impacted by our estimates made to establish the reserve for potential future product returns.

     Allowance for Doubtful Accounts

     We make ongoing assumptions relating to the collectibility of our accounts receivable in our calculation of the allowance for doubtful accounts. In determining the amount of the allowance, we make judgments about the creditworthiness of customers based on ongoing credit evaluations and assess current economic trends affecting our customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. We also consider our historical level of credit losses. Our reserves historically have been adequate to cover our actual credit losses. If actual credit losses were to be significantly greater than the reserves we have established, our general and administrative expenses would increase. Conversely, if actual credit losses were to be significantly less than our reserves, our general and administrative expenses would decrease.

     Contract Manufacturer Exposures

     We outsource most of our manufacturing, repair and supply chain management operations to our independent contract manufacturers. Accordingly, a significant portion of the cost of revenues consists of payments to them. Our independent contract manufacturers procure components and manufacture products based on our build forecasts. These forecasts are based on our estimates of future demand for our products. These estimates are based on historical trends and an analysis from our sales and marketing organizations, adjusted for overall market conditions. If the actual component usage and product demand are significantly lower than forecast, we have contractual liabilities and exposures with the independent contract manufacturers, such as carrying costs and obsolete material exposures, that would have an adverse impact on our gross margins and profitability. Demand for our products and component usage are largely affected by factors that are outside of our control.

     Warranty Reserves

     We generally offer a one-year warranty on all of our hardware products as well as a 90-day warranty on the media that contains the software embedded in the products. The warranty generally includes parts, labor and 24-hour service center support. On occasion, the specific terms and conditions of those

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warranties vary. We record a liability based on estimates of the costs that may be incurred under our warranty obligations and charge to cost of product sales the amount of such costs at the time revenue is recognized. Factors that affect our warranty liability include the number of installed units, our estimates of anticipated rates of warranty claims and costs per claim. Our estimates of anticipated rates of warranty claims and costs per claim are primarily based on historical information and future forecasts. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. If actual warranty claims are significantly higher than forecast, or if the actual costs incurred to provide the warranty is greater than the forecast, our gross margins could be adversely affected.

     Provision for Income Taxes

     Estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from temporary differences and carryforwards. We regularly assess the likelihood that our deferred tax assets will be realized from recoverable income taxes or recovered from future taxable income based on the realization criteria set forth under SFAS 109, “Accounting for Income Taxes,” and we record a valuation allowance to reduce our deferred tax assets to the amount that we believe to be more likely than not realizable. Accordingly, a valuation allowance in an amount equal to the net deferred tax assets has been established to reflect uncertainty regarding future realization of these assets, in part, due to the potential impact of future stock option deductions. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize potential liabilities based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities may result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities is less than the amount ultimately assessed, a further charge to expense would result.

     Results of Operations

     Net Revenues

     The following table shows product and service net revenues in absolute dollars and as a percentage of total net revenues for the years ended December 31, 2003, 2002 and 2001 (in thousands):

     Our net revenues for each of the last three years have primarily changed as a result of the changes in the global economy, which caused fluctuations in our customers’ capital expenditure budgets. Beginning in mid-2001, the overall global economy deteriorated and most of our customers reduced their capital expenditure budgets. We began to see these factors improve in 2003, as was evidenced by the change in chassis revenue units and ports shipped, as summarized in the table below.

     Our platforms are essentially modular, with the chassis serving as the base of the platform. Each chassis has a certain number of slots that are available to be populated with components we refer to as modules or interfaces. The modules are the components through which the router receives incoming packets of data from a variety of transmission media. The physical connection between a transmission medium and a module is referred to as a port. The number of ports on a module varies widely depending on the functionality and throughput offered by the module.

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     Chassis revenue units represent the number of chassis on which revenue was recognized during the period. Chassis revenue units and ports shipped are tracked to analyze customer trends and are used as indicators for potential network growth.

     The increase in product net revenues in 2003 compared to 2002 was due primarily to an increase in the demand for our products resulting from our customers expanding their networks for new applications and users, partially offset by a shift in product mix to less expensive products. We did not experience any unusual pricing pressure in 2003 compared to 2002. The decrease in product net revenues in 2002 compared to 2001 was due primarily to a decrease in the demand for our products that resulted from the generally unfavorable economic conditions throughout 2002 and a shift in product mix to less expensive products.

     Service net revenues increased each of the last two years as a result of a larger installed base of customers and products. A majority of service revenue is from customers who previously purchased our products and enter into a service contract. In addition to service contracts, service revenue is generated from providing professional and educational services. Service contracts are typically for one-year renewable periods and revenue is recognized ratably over the service period.

     Two customers individually accounted for 15% and 13% of total net revenues in 2003. For 2002, one customer accounted for 17% of net product revenues, compared to 2001, where one customer accounted for 14%, a second customer accounted for 13% and a third customer accounted for 11% of net product revenues. Management began including service revenue in its calculation of significant customers in the second half of 2002.

     The following table shows net revenue by geographic region (in thousands):

     We experienced a shift in net revenues as a percentage of total net revenues from the Americas region to Europe and Asia during the last two years as the capital spending market in the United States declined at a greater rate than the international market. We expect the split among the Americas and international regions to remain relatively consistent during 2004.

     Cost of Revenues

     The following table shows cost of product and service revenues and the related gross margin (“GM”) percentages for the years ended December 31, 2003, 2002 and 2001 (in thousands):

     The increase in product gross margins from 2002 to 2003 was primarily due to savings in outsourced manufacturing costs as a result of improved efficiencies and cost cutting initiatives at our contract manufacturers. The increase in product gross margins was also due to a 62% decrease in carrying and obsolete material charges from 2002 to 2003. In addition, 2002 included a one-time charge of $5.1 million related to the Unisphere acquisition for backlog orders and an inventory write-up adjustment.

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     Product gross margins were flat at 62% for 2002 and 2001 as a result of operational costs being cut as the demand for our products decreased. The decrease in absolute dollars for cost of product revenue from 2001 to 2002 was directly related to the decrease in product revenue, which was primarily a result of unfavorable economic conditions many customers experienced throughout 2002, as well as to a 37% decrease in carrying and obsolete material charges.

     Service gross margins increased from 2002 to 2003 as a result of the 25% increase in service revenue as compared to only a 13% increase in cost of service revenues. We were able to grow service revenue at a faster rate than cost of service revenues due to improved efficiencies and economies of scale that were a direct result of a larger install base, and thus a more leveraged service organization. This increased leverage is evidenced by the fact that total employee related expenses decreased as a percentage of service revenue from 29% for 2002 to 27% for 2003, however, in absolute dollars employee related expenses increased slightly. In addition, in absolute dollars, the costs associated with spare parts increased by 39% year over year.

     Service gross margins increased from 2001 to 2002 primarily due to a larger installed base of customers and products combined with realized savings in our service organization for personnel and other related costs associated with our restructuring activities.

     Research and Development, Sales and Marketing and General and Administrative Expenses

     The following table shows research and development, sales and marketing and general and administrative expenses in absolute dollars and as a percentage of total net revenues for the years ended December 31, 2003, 2002 and 2001 (in thousands):

     Research and development expenses increased $14.2 million in 2003 compared to 2002, but decreased as a percent of total net revenues. The increase in absolute dollars was primarily due to a 16% increase in employee related expenses as a result of a full year of operations after the acquisition of Unisphere. In addition, we stopped paying bonuses in 2002 as part of our overall corporate cost cutting initiatives; however, we started to accrue employee bonuses in the second half of 2003 as our financial results improved. Offsetting the increase in employee related expenses was a 35% decrease in consulting and contractor services due to our overall corporate cost cutting initiatives and a 28% decrease in prototype expenses. Prototype expenses are closely tied to product launches because of the testing and certification needed before a product can be offered to the public, and the amounts can vary depending on the product being developed.

     Research and development expenses increased $6.4 million and as a percent of total net revenues in 2002 compared to 2001. The increases were primarily a result of a 50% increase in headcount related expenses, a 48% increase in the use of consulting and contractor services, partially offset by 63% savings in prototype equipment. Headcount related expenses and consulting and contractor services increased primarily due to the Unisphere acquisition. Prototype equipment expenses were higher during 2001 because we were preparing for the release of our high-end T series products, as well as certain M-series and J-series products, and developing and testing a new family of application specific integrated circuits (ASICs).

     We expect to continue to devote resources to the development of new products and the enhancement of existing products. We believe that research and development is critical to our strategic product development objectives and that to leverage our leading technology and meet the changing requirements of our customers, we will need to fund investments in several development projects in parallel.

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     Sales and marketing expenses increased $19.0 million in 2003 compared to 2002, but decreased as a percent of total net revenues. The majority of the increase in absolute dollars was a 32% increase in employee related expenses in the sales organization as a result of additional headcount and commissions, resulting from the increase in revenue. In addition, customer facing expenses such as marketing events and customer programs increased 40%. Offsetting the increases was a decrease of 41% for demonstration equipment, which is expensed immediately and is closely tied to product launches. To date, we have not incurred significant advertising expenses.

     Sales and marketing expenses decreased $13.6 million in 2002 compared to 2001, but increased as a percent of net revenues. The decrease in absolute dollars was a result of a 63% decrease in costs related to employee and partner events, a 23% reduction in the use of demonstration equipment, and consolidation of excess facilities, all of which are attributable to our cost cutting initiatives.

     We intend to continue to focus and expand our sales and marketing efforts across all the geographies and markets we serve in order to increase market awareness of our products and to better support our existing customers worldwide. We believe that continued investment in sales and marketing is critical to our success.

     General and administrative expenses decreased $5.8 million and as a percent of total net revenues in 2003 compared to 2002. The majority of the decrease was due to a 91% reduction in bad debt expense in 2003 compared to 2002. This reduction was a result of greater than expected collection efforts and the absence of any significant customer bankruptcies. The decrease in bad debt expense was partially offset by a 22% increase in professional services related to certain strategic consulting activities.

     General and administrative expenses decreased $3.3 million in 2002 compared to 2001, but increased as a percent of total net revenues. The decrease was due to a 15% savings in employee related expenses and a 12% decrease in the use of outside services, both of which are attributable to our cost cutting initiatives.

     Other Operating Expenses

     The following table shows other operating expenses in absolute dollars for the years ended December 31, 2003, 2002 and 2001 (in thousands):

     Restructuring and Other

     In the third quarter of 2003, we announced that we are no longer developing our G-series CMTS products and recorded a one-time charge of approximately $14.0 million that was comprised of workforce reduction costs, non-inventory asset impairment, vacating facilities costs, the costs associated with termination of contracts and other related costs. Our Board of Directors approved the restructuring charge and expects that the plan will facilitate the focus on core competencies and reduce our cost structure. The following table shows the breakdown of the restructuring charge and the liability remaining as of December 31, 2003 (in thousands):

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     The workforce reduction related primarily to the termination of 76 employees that were mainly located in the Americas and Europe regions. We expect to pay the remaining balance of the severance accrual by the end of the first quarter of 2004. Non-inventory asset impairment was primarily for long-lived assets that were no longer needed as a result of our decision to cease further development of the product line. Facility charges consist primarily of the cost of vacating facilities that were dedicated to the development of the G-series CMTS products and the impairment cost of certain leasehold improvements. The net present value of the facility charge was calculated using our risk-adjusted borrowing rate. Amounts related to the net facility charge will be paid over the respective lease term through July 2008. The difference between the actual future rent payments and the net present value will be recorded as operating expenses when incurred. Other contractual commitments and other charges consist primarily of $0.9 million of carrying and obsolete material charges from our contract manufacturers and suppliers for on-hand and on-order material related to the G-series CMTS products and $0.9 million of costs to satisfy end-of-life commitments in certain customer contracts. All of these costs were included as a charge to the results of operations in the quarter ended September 30, 2003. Changes to the estimates of executing the currently approved plans of restructuring will be reflected in results of operations.

     During the third quarter of 2002, in connection with the acquisition of Unisphere, we recorded restructuring expenses of approximately $14.9 million, associated primarily with workforce related costs, costs of vacating duplicative facilities, contract termination costs, non-inventory asset impairment charges and other associated costs, net of a $2.6 million adjustment due to a change in estimate. As of December 31, 2003, there was $3.1 million remaining to be paid, entirely related to facility costs to be paid through April 2009.

     We also recognized a charge of approximately $5.3 million during the quarter ended September 30, 2002 related to the land acquired in January 2001 located in Sunnyvale, California. The charge was primarily for costs of exiting certain contractual obligations associated with the land. We currently have no plans to continue developing the land in the foreseeable future.

     In June 2001, we announced a restructuring program that included a worldwide workforce reduction, consolidation of excess facilities and restructuring of certain business functions. As of December 31, 2003, there was $0.2 million remaining to be paid, entirely related to facility costs to be paid through August 2006.

     Amortization of Purchased Intangibles and Deferred Stock Compensation

     We amortize purchased intangible assets and deferred stock compensation over their estimated lives. The following table shows the breakdown of the amortization expenses (in thousands):

     The amortization expense of intangible assets increased $6.8 million in 2003 compared to 2002 due to the intangible assets purchased in the Unisphere acquisition in July 2002. The amortization expense of intangible assets increased $11.2 million in 2002 compared to 2001 due to the intangible assets purchased in the Unisphere acquisition in July 2002 and a full year of amortization of the intangible assets purchased in the Pacific Broadband Communications (“Pacific Broadband”) acquisition in December 2001.

     The amortization expense of deferred stock compensation was $2.0 million in 2003, which included a credit, as required by APB Opinion No. 25, “Accounting for Stock Issue to Employees,” (“APB 25”) of approximately $5.6 million due to employees who forfeited options for which compensation expense had been recognized on the

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graded vesting method, but which were unvested on the date their employment was terminated. A majority of these employees were a part of the restructuring plan in 2003.

     The amortization expense of deferred stock compensation was $0.4 million and $74.1 million in 2002 and 2001, respectively. The primary reason for the decrease was a reversal, as required by APB 25, of $33.5 million in previously recognized stock compensation expense. This reversal related to the difference between the expense that had been previously recognized under the graded-vesting method for former employees and the expense that would have been recorded using the straight-line method. Finally, the decrease in expense is also a result of using the graded vesting method, which expenses a larger percent in the earlier months.

     In-Process Research and Development

     In July 2002, we completed the acquisition of Unisphere, a subsidiary of Siemens. Following the acquisition and during the remainder of 2002, Siemens was one of our significant resellers. The acquisition resulted in the payment of $375.0 million cash and the issuance of 36.5 million shares of our common stock with a fair value of approximately $359.9 million to the former stockholders of Unisphere. We recorded goodwill of $769.9 million, purchased intangible assets of $74.0 million, in-process research and development (“IPR&D”) of $82.7 million and deferred compensation on unvested stock options of $0.5 million. The intangibles assets, other than goodwill, are being amortized over their respective useful lives, which we determined to be between two and six years.

     In December 2001, we acquired Pacific Broadband and accounted for the acquisition under the purchase method of accounting. We allocated $4.2 million of the $148.3 million purchase price as in-process research and development. We also originally recorded goodwill of $127.3 million and other intangible assets of $10.2 million. The intangibles assets have been completely amortized as of December 31, 2003.

     Integration

     We incurred integration expenses of approximately $2.5 million in the quarter ended September 30, 2002 resulting from our acquisition of Unisphere. Integration expenses are one-time incremental costs directly related to the integration of the two companies that have no go forward benefit. The integration expenses consisted principally of workforce related expenses for individuals transitioning their positions and professional fees.

     Amortization of Goodwill

     There was no amortization of goodwill in 2003 and 2002 in accordance with SFAS 142. Amortization of goodwill was $46.6 million in 2001 from the Micro Magic, Inc. acquisition, which occurred in 2000.

     Other Income and Expenses

     The following table shows other income and expenses for the years ended December 31, 2003, 2002 and 2001 (in thousands):

     Interest and other income decreased $23.0 million in 2003 compared to 2002. The decrease was the result of lower cash and investment balances throughout 2003 as we spent $792.0 million to retire a portion of our 4.75% Convertible Subordinated Notes Due March 15, 2007 (the “Subordinated Notes”),

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partially offset by the $392.8 million in net proceeds received from the issuance of the Zero Coupon Convertible Senior Notes due June 15, 2008 (the “Senior Notes”). In addition, interest rates were lower in 2003 as compared to 2002.

     Interest and other income decreased $38.3 million in 2002 compared to 2001. The decrease was the result of lower cash and investment balances throughout 2002 as we spent $146.0 million to retire a portion of the Subordinated Notes and $375.8 million in the Unisphere acquisition. In addition, interest rates were lower in 2002 as compared to 2001.

     Interest and other expenses decreased $16.5 million in 2003 compared to 2002 and $5.8 million in 2002 compared to 2001, almost entirely due to interest saved from the partial retirement of the Subordinated Notes during each of the last two years.

     During 2003, we paid $792.0 million to retire and redeem a portion of the Subordinated Notes. These Subordinated Notes had a cost basis of $800.0 million. The retirement resulted in a gain of $14.1 million and the redemption resulted in a loss of $15.2 million, both of which was the difference between the carrying value of the Subordinated Notes at the time of their retirement, including unamortized debt issuance costs, and the amount paid to extinguish such notes.

     In the quarter ended September 30, 2002, we paid approximately $146.0 million to retire a portion of the Subordinated Notes. This partial retirement resulted in a gain of approximately $62.9 million, which was the difference between the carrying value of the Subordinated Notes at the time of their retirement, including unamortized debt issuance costs, and the amount paid to extinguish such notes.

     During the first and second quarters of 2003, we sold some of our marketable equity securities classified as available-for-sale, which had a cost basis of $4.3 million, and recognized gains of $8.7 million.

     We have certain minority equity investments in privately held companies that are carried at cost, adjusted for any impairment, as we own less than 20% of the voting equity and do not have the ability to exercise significant influence over these companies. We wrote-down these investments $50.5 million and $53.6 million in 2002 and 2001, respectively, for changes in market value that we believed were other than temporary. There were no such write-downs in 2003.

     Equity in net loss of joint venture decreased $2.8 million in 2002 compared with 2001. During the quarter ended June 30, 2001, we entered into a joint venture agreement with Ericsson A.B., through our respective subsidiaries, to develop and market products for the wireless Internet infrastructure market. In addition to this joint venture, Ericsson is also one of our significant resellers, representing greater than 10% of our revenues in 2003, 2002 and 2001. As of December 31, 2002, we had no further obligations to fund this joint venture.

     Provision for Income Taxes

     Provision for income taxes increased to $19.8 million in 2003 from $4.5 million in 2002. The 2003 effective rate was 33.6% and reflects taxes payable in certain foreign jurisdictions, the benefit of research credits and capital loss carryforwards and the inability to benefit certain charges and losses.

     Provision for income taxes decreased to $4.5 million in 2002 from $30.0 million in 2001. The effective tax rates for 2002 and 2001 were
- -3.9% and 181%, respectively. The tax rates for 2002 and 2001 include the effects of write-downs in equity investments and acquisition related charges for goodwill and in-process research and development, which are non-deductible.

     The IRS is currently auditing the Company’s federal income tax returns for fiscal years 1999 and 2000. Proposed adjustments have not been received for these years. Management believes the ultimate outcome of the IRS audits will not have a material adverse impact on the Company’s financial position or results of operations.

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     Liquidity and Capital Resources

     Overview

     We have funded our business by issuing securities and through our operating activities. The following table shows our capital resources (in thousands):

     Working capital decreased from 2002 to 2003 primarily due to the partial retirement of the Subordinated Notes, offset by cash provided by operations and the issuance of common stock through employee stock option exercises and stock purchase plans. The significant components of our working capital are cash and cash equivalents, short-term investments and accounts receivable, reduced by accounts payable, accrued liabilities and deferred revenue.

     Based on past performance and current expectations, we believe that our cash and cash equivalents, short-term investments, and cash generated from operations will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations through at least the next 12 months. In addition, there are no transactions, arrangements, and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of our requirements for capital resources.

     Cash Requirements and Contractual Obligations

     The following table summarizes our principal contractual obligations at December 31, 2003 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

     As of December 31, 2003, our principal commitments consisted of obligations outstanding under operating leases, the Subordinated Notes and the Senior Notes. The contractual obligations under operating leases are primarily for our facilities. Interest is paid semi-annually on March 15 and September 15 for the Subordinated Notes at an annual rate of 4.75%. Anytime we retire a portion of the Subordinated Notes, the interest accrued on that portion is due.

     The Senior Notes were issued in June 2003 and are senior unsecured obligations, rank on parity in right of payment with all of our existing and future senior unsecured debt, and rank senior to all of our existing and future debt that expressly provides that it is subordinated to the notes, including our Subordinated Notes. The Senior Notes bear no interest, but are convertible into shares of our common stock, subject to certain conditions, at any time prior to maturity or their prior repurchase by Juniper Networks. The conversion rate is 49.6512 shares per each $1,000 principal amount of convertible notes, subject to adjustment in certain circumstances.

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     We do not have firm purchase commitments with our contract manufacturers. In order to reduce manufacturing lead times and ensure adequate component supply, the contract manufacturers place non-cancelable, non-returnable (“NCNR”) orders based on our build forecasts. As of December 31, 2003, there were NCNR orders valued at $62.5 million. We do not take ownership of the components and the NCNR orders do not represent firm purchase commitments per our agreements with the contract manufacturers. The components are used to build products based on purchase orders we have received from our customers. The liability for products built by the contract manufacturer is recorded once they fulfill our customer’s order and the order ships. If the components go unused, there may be carrying charges or obsolete charges assessed. As of December 31, 2003, we had accrued $14.6 million for potential exposures with our contract manufacturers, such as carrying and obsolete material charges.

     Operating Activities

     Net cash provided by operating activities was $178.6 million, $2.4 million and $292.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. The cash provided by operating activities for all periods was due to our net income in 2003 and net losses in 2002 and 2001 adjusted by ongoing non-cash charges such as:

	•		depreciation expense;
	•		amortization expenses for intangible assets, deferred compensation and debt costs; and
	•		normal fluctuations in accounts receivable, prepaid and other current assets, long-term assets, accounts payables, accrued liabilities and deferred revenue.

Unusual and significant adjustments to the net income for 2003 included:

	•		a non-cash charge of $3.6 million associated to the impairment of assets included as part of the restructuring in 2003;
	•		the net loss of $1.1 million on the retirement of the Subordinated Notes;
	•		a non-cash tax benefit of $10.8 million related to the exercise of employee stock options; and
	•		a gain of $8.7 million from the sale of investments.

Unusual and significant adjustments to the net losses in 2002 and 2001 include:

	•		non-cash charges of $1.7 million and $4.5 million, respectively, related to the restructuring programs during those years;
	•		a gain of $62.9 million for the partial retirement of Subordinated Notes in 2002;
	•		the non-cash write-downs of $50.5 million and $53.6 million, respectively, for the impairment of equity investments;
	•		in-process research and development charges of $83.5 million and $4.2 million, respectively, related to the Unisphere and Pacific Broadband acquisition, respectively;
	•		the tax benefit of $25.0 million in 2001 related to the exercise of employee stock options and
	•		the $46.6 million amortization of goodwill in 2001.

     Investing Activities

     Net cash provided by investing activities was $300.1 million for the year ended December 31, 2003 and net cash used in investing activities was $295.5 million and $307.4 million for the years ended December 31, 2002 and 2001, respectively. Recurring investing activities included capital expenditures of $19.4 million, $36.1 million and $241.1 million, respectively. We reduced our capital expenditures over the past two years as part of our overall corporate cost cutting initiatives. We have also made investments in securities classified as available-for-sale and sold investments to fund ongoing operations, the partial retirement of the Subordinated Notes and the Unisphere acquisition. We have also made minority equity investments of $0.9 million, $1.2 million and $8.2 million, respectively, in privately held companies. Unusual investing activities include (i) an increase of $30.8 million in restricted cash for the establishment of a trust to secure our indemnification obligations to certain directors and officers and the purchase of letters of credit to secure certain facility leases and (ii) $375.8 million paid in 2002 related to the Unisphere acquisition.

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     Financing Activities

     Net cash used in financing activities was $307.5 million and $119.4 million for the years ended December 31, 2003 and 2002, respectively. Net cash provided by financing activities was $58.5 million for the year ended December 31, 2001. We received proceeds during all three years from the issuance of common stock related to employee option exercises and stock purchase plans. We also received $392.8 million in net proceeds from the issuance of the Senior Notes in 2003 and paid $792.0 million and $146.0 million in 2003 and 2002, respectively, to retire a portion of the Subordinated Notes.

     Recent Accounting Pronouncements

     In December 2003, the Financial Accounting Standards Board (FASB) issued a revision to Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46R”). FIN 46R clarifies the application of ARB No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support provided by any parties, including the equity holders. FIN 46R requires the consolidation of these entities, known as variable interest entities (“VIEs”), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both.

     Among other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies to the end of the first reporting period ending after March 15, 2004, except that all public companies must at a minimum apply the unmodified provisions of the Interpretation to entities that were previously considered “special-purpose entities” in practice and under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003.

     Among the scope exceptions, companies are not required to apply FIN 46R to an entity that meets the criteria to be considered a “business” as defined in the Interpretation unless one or more of four named conditions exist. FIN 46R applies immediately to a VIE created or acquired after January 31, 2003. We do not have any interests in VIEs.

     Factors That May Affect Future Results

     We face intense competition that could reduce our market share and adversely affect our ability to generate revenues.

     Competition in the network infrastructure market is intense. This market has historically been dominated by Cisco with other companies such as Nortel Networks and Alcatel providing products to a smaller segment of the market. In addition, a number of other small public or private companies have announced plans for new products to address the same challenges that our products address.

     If we are unable to compete successfully against existing and future competitors from a product offering standpoint or from potential price competition by such competitors, we could experience a loss in market share and/or be required to reduce prices, resulting in reduced gross margins, either of which could materially and adversely affect our business, operating results and financial condition.

     The fluctuating economic conditions, combined with the financial condition of some of our customers, make it difficult to predict revenues for a particular period and a shortfall in revenues may harm our operating results.

     The recent economic downturn generally, and in the telecommunication industry specifically, combined with our own relatively limited operating history in the context of such a downturn, makes it difficult to accurately forecast revenue.

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     We have experienced and expect, in the foreseeable future, to continue to experience limited visibility into our customers’ spending plans and capital budgets. This limited visibility complicates the revenue forecasting process. Additionally, many customers funded their network infrastructure purchases through a variety of debt and similar instruments and many of these same customers are carrying a significant debt burden and are experiencing reduced cash flow with which to carry the cost of the debt and the corresponding interest charges, which reduces their ability to both justify and make future purchases. The telecommunications industry has experienced consolidation and rationalization of its participants and we expect this trend to continue. There have been adverse changes in the public and private equity and debt markets for telecommunications industry participants, which have affected their ability to obtain financing or to fund capital expenditures. In some cases the significant debt burden carried by these customers has reduced their ability to pay for the purchases made to date. This has contributed, and we expect it to continue to contribute, to the uncertainty of the amounts and timing of capital expenditures, further limiting visibility and complicating the forecasting process. Certain of these customers have filed for bankruptcy as a result of their debt burdens. Although these customers generally expect that they will emerge from the bankruptcy proceedings in the future, a bankruptcy proceeding can be a slow and cumbersome process, further limiting the visibility and complicating the revenue forecasting process as to these customers. Even if they should emerge from such proceedings, the extent and timing of any future purchases of equipment is uncertain. This uncertainty will further complicate the revenue forecasting process.

     In addition, our operating expenses are largely based on anticipated revenue trends and a high percentage of our expenses are, and will continue to be, fixed in the short-term. If we do not achieve our expected revenues, the operating results will be below our expectations and those of investors and market analysts, which could cause the price of our common stock to decline.

     A limited numbers of customers comprise a significant portion of our revenues and any decrease in revenue from these customers could have an adverse effect on us.

     Even though our customer base has increased substantially, we expect that a large portion of our net revenues will continue to depend on sales to a limited number of customers. During 2003, Ericsson and Siemens each accounted for greater than 10% of net revenues. Ericsson was the only customer that accounted for greater than 10% of net revenues during 2002. Any downturn in the business of these customers or potential new customers could significantly decrease sales to such customers that could adversely affect our net revenues and results of operations.

     We rely on distribution partners to sell our products, and disruptions to these channels could adversely affect our ability to generate revenues from the sale of our products.

     We believe that our future success is dependent upon establishing and maintaining successful relationships with a variety of distribution partners. We have entered into agreements with several value added resellers, some of which also sell products that compete with our products. We cannot be certain that we will be able to retain or attract resellers on a timely basis or at all, or that the resellers will devote adequate resources to selling our products.

     Any acquisition we make could disrupt our business and harm our financial condition if we are not able to successfully integrate acquired businesses and technologies or if expected benefits of the combination do not materialize.

     We have made and may continue to make acquisitions and investments in order to enhance our business. For example, we recently entered into an agreement to acquire NetScreen Technologies, Inc. in a stock-for-stock acquisition valued at approximately $4 billion at signing. This transaction, if consummated, will dilute our existing stockholders’ percentage ownership. In addition, some of our results will be negatively impacted due to certain purchase accounting rules which will result in a write-down of NetScreen’s deferred revenue and other purchase accounting adjustments. Further, the failure to effectively manage the acquisition and integration of NetScreen could disrupt our business and harm our financial results.

     Acquisitions involve numerous risks, including problems combining the purchased operations, technologies or products, unanticipated costs, diversion of management’s attention from our core business, adverse effects on existing business relationships with suppliers and customers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. There can be no assurance that we will be able to successfully integrate any businesses, products, technologies or personnel that we might acquire.

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     The integration of businesses that we have acquired into our business has been and will continue to be a complex, time consuming and expensive process. Failure to operate as a combined organization utilizing common information and communication system, operating procedures, financial controls and human resources practices could adversely impact the success of any business combination. For example, although we completed the acquisition of Unisphere Networks on July 1, 2002, integration of the products, product roadmap and operations is a continuing activity and will be for the foreseeable future. As a result of these activities, we may lose opportunities and employees, which could disrupt our business and harm our financial results.

     We also intend to make investments in complementary companies, products or technologies. In the event of any such investments or acquisitions, we could issue stock that would dilute our current stockholders’ percentage ownership, incur debt, assume liabilities, incur amortization expenses related to purchases of intangible assets, or incur large and immediate write-offs.

     Our products are highly technical and if they contain undetected software or hardware errors, our business could be adversely impacted.

     Our products are highly technical and are designed to be deployed in very large and complex networks. Certain of our products can only be fully tested when deployed in networks that generate high amounts of IP traffic. As a result, we may experience errors in connection with such products and for new products and enhancements. Any defects or errors in our products discovered in the future could result in loss of or delay in revenue, loss of customers and increased service and warranty cost, any of which could adversely impact our business and our results of operations.

     If our products do not interoperate with our customers’ networks, installations will be delayed or cancelled and could harm our business.

     Our products are designed to interface with our customers’ existing networks, each of which have different specifications and utilize multiple protocol standards and products from other vendors. Many of our customers’ networks contain multiple generations of products that have been added over time as these networks have grown and evolved. Our products must interoperate with all of the products within these networks as well as future products in order to meet our customers’ requirements. If we find errors in the existing software used in our customers’ networks, we must modify our software to fix or overcome these errors so that our products will interoperate and scale with the existing software and hardware. If our products do not interoperate with those of our customers’ networks, installations could be delayed, orders for our products could be cancelled or our products could be returned. This would also damage our reputation, which could seriously harm our business and prospects.

     Traditional telecommunications companies generally require more onerous terms and conditions of their vendors. As we seek to sell more products to such customers we may be required to agree to terms and conditions that may have an adverse effect on our business.

     Traditional telecommunications companies because of their size generally have had greater purchasing power and accordingly have requested and received more favorable terms, which often translate into more onerous terms and conditions for their vendors. As we seek to sell more products to this class of customer, we may be required to agree to such terms and conditions which may include terms that effect our ability to recognize revenue and have an adverse effect on our business and financial condition.

     In addition, many of this class of customer have purchased products from other vendors who promised certain functionality and failed to deliver such functionality and/or had products that caused problems and outages in the networks of these customers. As a result, this class of customer may request additional features from us and require substantial penalties for failure to deliver such features or may require substantial penalties for any network outages that may be caused by our products. These

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additional requests and penalties, if we are required to agree to them, may affect our ability to recognize the revenue from such sales, which may negatively affect our business and our financial condition.

     If we do not successfully anticipate market needs and develop products and product enhancements that meet those needs, or if those products do not gain market acceptance, we may not be able to compete effectively and our ability to generate revenues will suffer.

     We cannot ensure that we will be able to anticipate future market needs or that we will be able to develop new products or product enhancements to meet such needs or to meet them in a timely manner. If we fail to anticipate the market requirements or to develop new products or product enhancements to meet those needs, such failure could substantially decrease market acceptance and sales of our present and future products, which would significantly harm our business and financial results. Even if we are able to anticipate and develop and commercially introduce new products and enhancements, there can be no assurance that new products or enhancements will achieve widespread market acceptance. Any failure of our future products to achieve market acceptance could adversely affect our business and financial results.

     Our ability to develop, market and sell products could be harmed if we are unable to retain or hire key personnel.

     Our future success depends upon the continued services of our executive officers and other key engineering, sales, marketing and support personnel. None of our officers or key employees is bound by an employment agreement for any specific term.

     The loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel, particularly engineers, could delay the development and introduction of and negatively impact our ability to develop, market, sell, or support our products.

     If we fail to accurately predict our manufacturing requirements, we could incur additional costs which would harm our results of operations or experience manufacturing delays which would harm our business.

     Our contract manufacturers are not obligated to supply products for any specific period, in any specific quantity or at any specific price, except as may be provided in a particular purchase order because we do not have long-term supply contracts with them. In addition, lead times for required materials and components vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. We provide to our contract manufacturers a demand forecast. If we overestimate our requirements, the contract manufacturers may assess charges that could negatively impact our gross margins. For example, for the quarter ended September 30, 2001, we recorded a charge for approximately $39.9 million associated with contractual liabilities and carrying charges on excess material at our contract manufacturers. If we underestimate our requirements, the contract manufacturers may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenues.

     We are dependent on sole source and limited source suppliers for several key components, which make us susceptible to shortages or price fluctuations.

     With the current demand for electronic products, component shortages are possible and the predictability of the availability of such components may be limited. We currently purchase several key components, including ASICs, from single or limited sources. For example, IBM is our ASIC supplier. We may not be able to develop an alternate or second source in a timely manner, which could hurt our ability to deliver product to customers. If we are unable to buy these components on a timely basis, we will not be able to deliver product to our customers, which would seriously impact present and future sales, which would, in turn, adversely affect our business.

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     We currently depend on contract manufacturers with whom we do not have long-term supply contracts, and changes to those relationships, expected or unexpected, may result in delays or disruptions that could cause us to lose revenue and damage our customer relationships.

     We depend on independent contract manufacturers (each of whom is a third party manufacturer for numerous companies) to manufacture our products. We do not have a long-term supply contract with such manufacturers and if we should fail to effectively manage our contract manufacturer relationships or if one or more of them should experience delays, disruptions or quality control problems in its manufacturing operations, our ability to ship products to our customers could be delayed which could adversely affect our business and financial results.

     Litigation regarding intellectual property rights may be time consuming and require a significant amount of resources to prosecute or defend, therefore we may have to expend a substantial amount of resources to make our products non-infringing and may have to pay a substantial amount of money in damages.

     Third parties have and may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are relevant to us. For example, in 2003, Toshiba Corporation filed suit against us, alleging that our products infringe certain Toshiba patents. The asserted claims and/or initiated litigation can include claims against us or our manufacturers, suppliers, or customers, alleging infringement of their proprietary rights with respect to our products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation, require us to develop non-infringing technologies or enter into license agreements. Furthermore, because of the potential for high court awards that are not necessarily predictable, even arguably unmeritorious claims may be settled for significant funds. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results and financial condition could be materially and adversely affected.

     We are a party to lawsuits, which, if determined adversely to us, could require us to pay damages which could harm our business and financial condition.

     We and certain of our former officers and current and former members of our board of directors are subject to various lawsuits. There can be no assurance that actions that have been or will be brought against us will be resolved in our favor. Regardless of whether they are in our favor, these lawsuits are, and any future lawsuits to which we may become a party in the future will likely be, expensive and time consuming to defend or resolve. Any losses resulting from these claims could adversely affect our profitability and cash flow.

     The long sales and implementation cycles for our products, as well as our expectation that customers will sporadically place large orders with short lead times may cause revenues and operating results to vary significantly from quarter to quarter.

     A customer’s decision to purchase our products involves a significant commitment of its resources and a lengthy evaluation and product qualification process. As a result, the sales cycle may be lengthy. Throughout the sales cycle, we often spend considerable time educating and providing information to prospective customers regarding the use and benefits of our products. Even after making the decision to purchase, customers tend to deploy the products slowly and deliberately. Timing of deployment can vary widely and depends on the skill set of the customer, the size of the network deployment, the complexity of the customer’s network environment and the degree of hardware and software configuration necessary to deploy the products. Customers with large networks usually expand their networks in large increments on a periodic basis. Accordingly, we expect to receive purchase orders for significant dollar amounts on an irregular basis. These long cycles, as well as our expectation that customers will tend to sporadically place large orders with short lead times, may cause revenues and operating results to vary significantly and unexpectedly from quarter to quarter.

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     Our products incorporate and rely upon licensed third-party technology and if licenses of third-party technology do not continue to be available to us or become very expensive, our revenues and ability to develop and introduce new products could be adversely affected.

     We integrate licensed third-party technology in certain of our products. From time to time we may be required to license additional technology from third parties to develop new products or product enhancements. Third-party licenses may not be available or continue to be available to us on commercially reasonable terms. Our inability to maintain or re-license any third party licenses required in our current products or our inability to obtain third-party licenses necessary to develop new products and product enhancements, could require us to obtain substitute technology of lower quality or performance standards or at a greater cost, any of which could harm our business, financial condition and results of operations.

     Due to the global nature of our operations, economic or social conditions or changes in a particular country or region could adversely affect our sales or increase our costs and expenses, which would have a material adverse impact on our financial condition.

     We conduct significant sales and customer support operations directly and indirectly through our resellers in countries outside of the United States and also depend on the operations of our contract manufacturers that are located outside of the United States. For the years ended December 31, 2003 and 2002, we derived approximately 58% and 45% of our revenues, respectively, from sales outside North America. Accordingly, our future results could be materially adversely affected by a variety of uncontrollable and changing factors including, among others, political or social unrest or economic instability in a specific country or region; trade protection measures and other regulatory requirements which may affect our ability to import or export our products from various countries; service provider and government spending patterns affected by political considerations; and difficulties in staffing and managing international operations. Any or all of these factors could have a material adverse impact on our revenue, costs, expenses and financial condition.

     If our restructuring initiatives are not sufficient to meet industry and market conditions and to achieve future profitability, we may undertake further restructuring initiatives, which may adversely affect our business, operating results and financial condition.

     In response to industry and market conditions, we have restructured our business and reduced our workforce. The assumptions underlying our restructuring efforts will be assessed on an ongoing basis and may prove to be inaccurate and we may have to restructure our business again in the future to achieve certain cost savings and to strategically realign our resources.

     While restructuring, we have assessed, and will continue to assess, whether we should further reduce our workforce and facilities, as well as review the recoverability of our tangible and intangible assets, including the land purchased in January 2001. Any such decisions may result in the recording of additional charges, such as workforce reduction costs, facilities reduction costs, asset write-downs, and contractual settlements. Additionally, estimates and assumptions used in asset valuations are subject to uncertainties, as are accounting estimates with respect to the useful life and ultimate recoverability of our carrying basis of assets, including goodwill and other intangible assets. As a result, future market conditions may result in further charges for the write down of tangible and intangible assets.

     We may not be able to successfully implement the initiatives we have undertaken in restructuring our business and, even if successfully implemented, these initiatives may not be sufficient to meet the changes in industry and market conditions and to achieve future profitability. Furthermore, our workforce reductions may impair our ability to realize our current or future business objectives. Lastly, costs actually incurred in connection with restructuring actions may be higher than the estimated costs of such actions and/or may not lead to the anticipated cost savings.

     We are exposed to fluctuations in currency exchange rates which could negatively affect our financial results and cash flows.

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     Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in non-US currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows.

     The majority of our revenue and expenses are transacted in US Dollars. We also have some transactions that are denominated in foreign currencies, primarily the Japanese Yen, Hong Kong Dollar, British Pound and the Euro, related to our sale and service operations outside of the United States. An increase in the value of the US Dollar could increase the real cost to our customers of our products in those markets outside the United States where we sell in US Dollars, and a weakened dollar could increase the cost of local operating expenses and procurement of raw materials to the extent we must purchase components in foreign currencies.

     Currently, we hedge only those currency exposures associated with certain assets and liabilities denominated in nonfunctional currencies and periodically will hedge anticipated foreign currency cash flows. The hedging activities undertaken by us are intended to offset the impact of currency fluctuations on certain nonfunctional currency assets and liabilities. Our attempts to hedge against these risks may not be successful resulting in an adverse impact on our net income.

     Our quarterly results are inherently unpredictable and subject to substantial fluctuations and, as a result we may fail to meet the expectations of securities analysts and investors, which could adversely affect the trading price of our common stock.

     Our revenues, operating results, book-to-bill ratio and other financial indicators will vary significantly from quarter to quarter due to a number of factors, including many of which are outside of our control and any of which may cause our stock price to fluctuate.

     The factors that may impact the unpredictability of our quarterly results include the reduced visibility into customers’ spending plans, the changing market conditions, which have resulted in some customer and potential customer bankruptcies, a change in the mix of our products sold, from higher priced core products to lower priced edge products, and long sales and implementation cycle.

     As a result, we believe that quarter-to-quarter comparisons of operating results are not a good indication of future performance. It is likely that in some future quarters, operating results may be below the expectations of securities analysts and investors in which case the price of our common stock may fall.

     If we fail to adequately evolve our financial and managerial control and reporting systems and processes, our ability to manage and grow our business will be negatively impacted.

     Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We expect that we will need to continue to improve our financial and managerial control and our reporting systems and procedures in order to manage our business effectively in the future. If we fail to continue to implement improved systems and processes, our ability to manage our business and results of operations may be negatively impacted.

     We sell our products to customers that use those products to build networks and IP infrastructure and if those networks and IP infrastructure do not continue to grow then our business, operating results and financial condition will be adversely affected.

     A substantial portion of our business and revenue depends on growth of IP infrastructure and on the deployment of our products by customers that depend on the continued growth of IP services. As a result of changes in the economy and capital spending, which have in the past particularly affected telecommunications service providers, spending on IP infrastructure can vary. A significant reduction in such spending would adversely affect our business.

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     Regulation of the telecommunications industry could harm our operating results and future prospects.

     The telecommunications industry is highly regulated and our business and financial condition could be adversely affected by the changes in the regulations relating to the telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or commerce on data networks. We could be adversely affected by regulation of those networks and commerce occurring on them in any country where we operate. Such regulations could include matters such as voice over the Internet or using Internet Protocol, encryption technology, and access charges for service providers. The adoption of such regulations could decrease demand for our products, and at the same time increase the cost of selling our products, each of which could have a material adverse effect on our business, operating results and financial condition.

ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk

     Interest Rate Risk

     We maintain an investment portfolio of various holdings, types and maturities. These securities are generally classified as available-for-sale and, consequently, are recorded on the Consolidated Balance Sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss).

     At any time, a rise in interest rates could have a material adverse impact on the fair value of our investment portfolio. Conversely, declines in interest rates could have a material adverse impact on interest earnings of our investment portfolio. We do not currently hedge these interest rate exposures.

     The following table presents the hypothetical changes in fair value of the financial instruments held at December 31, 2003 that are sensitive to changes in interest rates (in thousands):

     These instruments are not leveraged and are held for purposes other than trading. The modeling technique used measures the changes in fair value arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (BPS), 100 BPS and 150 BPS, which are representative of the historical movements in the Federal Funds Rate.

     Foreign Currency Risk and Foreign Exchange Forward Contracts.

     The majority of our revenue and expenses are transacted in US dollars. However, since we have sales and service operations outside of the US, we do have some transactions that are denominated in foreign currencies, primarily the Euro, Japanese Yen, Hong Kong Dollar, British Pound and the Australian Dollar.

     We enter into foreign exchange forward contracts to mitigate the effect of gains and losses generated by the remeasurement of certain assets and liabilities denominated primarily in the Euro, Japanese Yen, British Pound and Australian Dollar. These derivatives are not designated as hedges under SFAS No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” At December 31,

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2003, the notional and fair values of these contracts were insignificant. We do not expect gains and losses on these contracts to have a material impact on our financial results.

     We also use foreign exchange forward contracts to hedge foreign currency forecasted transactions related to certain operating expenses, denominated primarily in the Euro, Japanese Yen, British Pound and Australian Dollar. These derivatives are designated as cash flow hedges under SFAS 133. At December 31, 2003, the notional and fair values of these contracts were insignificant. We do not expect gains and losses on these contracts to have a material impact on our financial results.

     These contracts have original maturities ranging from one to three months. We do not enter into foreign exchange contracts for speculative or trading purposes. We attempt to limit our exposure to credit risk by executing foreign contracts with credit worthy financial institutions.

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ITEM 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

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Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Juniper Networks, Inc.

We have audited the accompanying consolidated balance sheets of Juniper Networks, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Juniper Networks, Inc. at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respect the information set forth therein.

/s/ Ernst & Young LLP

San Jose, California
January 13, 2004, except
for Note 18 as to
which the date
is February 9, 2004

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Juniper Networks, Inc.
Consolidated Balance Sheets
(in thousands, except par values)