Light Reading
Pays a jaw-dropping $4 billion in stock for a play in the enterprise security market UPDATED NOON

Juniper Buys NetScreen

Light Reading
News Analysis
Light Reading
2/9/2004
50%
50%

IP routing powerhouse Juniper Networks Inc. (Nasdaq: JNPR) announced this morning that it has entered into an agreement to buy network security vendor NetScreen Technologies Inc. (Nasdaq: NSCN) for about $4 billion in stock (see Juniper to Acquire NetScreen).

That's right, $4 billion!

Juniper and NetScreen executives said the motivation behind the deal is to put two best-of-breed technology companies together to create a stronger portfolio of networking products.

"It's time to lead, and there's no better lead than to match strength with strength," says Juniper CEO Scott Kriens. "NetScreen is one of the few technology companies to grow its business every quarter for the last few years through the downturn."

Juniper will exchange 1.4 shares of stock for every share of NetScreen. In morning trading, Juniper's stock was taking quite a shellacking, trading down $3.389 (11.50%) to $26.081, knocking down the price of the deal by a cool $400 million, to $3.6 billion. In contrast, NetScreen's stock shot up $9.36 (35.45%) to $37.25.

The deal is somewhat surprising, in that Juniper has its strength in equipment for service-provider networks, while NetScreen markets security and firewalls largely to the enterprise business market. This will put Juniper in more direct competition with Cisco Systems Inc. (Nasdaq: CSCO), which dominates the enterprise market. "It will stoke the Cisco fire, definitely," says Gabriel Lowy, an analyst with Blaylock & Partners.

Without a doubt, it's a big-ticket purchase, and one fraught with risk.

According to last Friday's stock prices, Juniper paid about a 40 percent market premium for NetScreen. As a stock transaction, it's all relative in a rising market, but Juniper shareholders will likely demand quick results in exchange for their dilutions.

The herd of analysts on the conference call appeared to applaud the deal, peppering the executives of both company with “great deal” and congratulations. But others, speaking after the conference call, were not so effusive.

”I find it incredulous that nobody on the conference call asked how they arrived at the valuation,” says Lowy. “It looks like they’re paying about eight times sales and 55 times earnings -- for what kind of growth rate?”

Juniper executives say the deal is “accretive,” meaning it will add to the company’s profits after the merger is complete. NetScreen’s revenues for the fourth quarter ended December 31 were $81 million, an increase of 59 percent from the comparable prior-year quarter and a sequential increase of 13 percent over the previous quarter. Net income during the December quarter totaled $6.4 million, or $0.07 per basic and diluted share.

Security products have been one of the few networking markets with undisputed strength in the past few years (see Shocking Results in LR's SSL VPN Test), and merger & acquisition activity has been heating up in the market.

The biggest question of all is: Is this market worth the price paid for NetScreen? Some recent data indicates that the security market growth is slowing, in which case Juniper's timing may be late (see Security Sales Stall ).

Infonetics Research Inc. last year issued a report that saw growth in the market slowing. While the VPN/firewall market showed some growth in the second quarter of 2003, it was moderate. The sector only grew 1 percent to $705 million. Infonetics projected in September of last year that the market's revenues would increase to $831 million by the second quarter of 2004. In 2002, the market generated $2.7 billion in revenue. By 2006, Infonetics estimated, the annual revenue for VPN and firewall products could hit $4.2 billion.

To complicate matters, the market is shifting, as demonstrated by NetScreen's entry into the SSL VPN market in the fall of 2003 via its purchase of Neoteris (see Security Players Catch M&A Bug).

Other large networking players, including Cisco and Nortel Networks Corp. (NYSE/Toronto: NT), have been working to beef up their security portfolios, specifically in the market for SSL VPN technology (see Cisco Takes a Stab at SSL, Cisco Prepping SSL Story, Shocking Results in LR's SSL VPN Test, and SSL VPNs: Access Anywhere, Anytime ).

Another big question is how Cisco will respond to Juniper moving deeper into its own turf. Cisco has been integrating security and firewall features into its routers.

Kriens, perhaps anticipating that many will be critical of the move into more of an enterprise market, downplayed this element of the deal:

"As for the question of service provider vs. enterprise... it doesn't matter, because [the distinction] is going away," said Kriens on the conference call. "The question is not whether the network is service-provider or enterprise, but whether the network is mission-critical. Both companies serve the same goal: mission-critical networks."

Kriens said that in addition to large enterprise customers such as Merrill Lynch & Co. Inc. and McDonalds, NetScreen sells products to service providers including SBC Communications Inc. (NYSE: SBC), Telecom Italia SpA (NYSE: TI), and China Unicom Ltd.

Kriens said he was confident that the integration of the two companies will go smoothly. The transaction is expected to close in the second quarter of this year.

“I can see the NetScreen building from the window of the conference room. If we can have success with an acquisition from across the country [Unisphere], I’m confident we can have success with a company across the street."

— R. Scott Raynovich, US Editor, Light Reading

(109)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Page 1 / 11   >   >>
st1rwing
50%
50%
st1rwing,
User Rank: Light Beer
12/5/2012 | 2:29:34 AM
re: Juniper Buys NetScreen
Here it comes again...
photon_tim
50%
50%
photon_tim,
User Rank: Light Beer
12/5/2012 | 2:29:33 AM
re: Juniper Buys NetScreen
Well yes,

but is Netscreen's market the same market that Juniper competes in?
Not sure whether this will derail their focus.

On the bright side: we can look forward to a LR article about the three code trains (JUNOS, JUNOSe, NetOS) in 18 month from now :-)

.. tim
laserbrain
50%
50%
laserbrain,
User Rank: Light Beer
12/5/2012 | 2:29:33 AM
re: Juniper Buys NetScreen
Way better than Unisphere.
Nscn is growing fast and dominates its market.
jsailor
50%
50%
jsailor,
User Rank: Light Beer
12/5/2012 | 2:29:32 AM
re: Juniper Buys NetScreen

or can it be that their carrier customers are asking for centrally manageable IP-SEC based VPN CPE device?

wilecoyote
50%
50%
wilecoyote,
User Rank: Light Beer
12/5/2012 | 2:29:32 AM
re: Juniper Buys NetScreen
I think this is a very interesting move for JNPR. Cisco is actually quite confused in security. They think it should be a feature embedded into a blade, but no one's really listening. You're not going to trust a Cisco firewall. This is Juniper's one opportunity to really get into enterprise (other than buying Foundry, Force10 or Extreme), and they took it.

I have a few questions for them, though: what does Kriens mean it doesn't matter, enterprise or service provider? I don't see a lot of T-640s or M anythings getting sold into enterprise. And I don't see a lot of Netscreen software running service provider networks.

This deal smells a little like Welfleet/Synoptics. Juniper is basically run out of Boston now on the sales side of things. How do the Unisphere guys feel about a price tag that's five times what was paid for their company? How will they manage a bi-coastal operation with businesses that have very little in common?

There's more to this story. But at least Juniper's got a story now. At least they're not a one trick pony anymore. The question is, are they a two headed freak?
echo2
50%
50%
echo2,
User Rank: Light Beer
12/5/2012 | 2:29:29 AM
re: Juniper Buys NetScreen
My options are going to make me rich!

Echo2
brahmos
50%
50%
brahmos,
User Rank: Light Beer
12/5/2012 | 2:29:28 AM
re: Juniper Buys NetScreen
wow..full speed ahead! '99 is back!
I need to testdrive that 7-series bmw.... :)
fw23
50%
50%
fw23,
User Rank: Light Beer
12/5/2012 | 2:29:27 AM
re: Juniper Buys NetScreen

I like this move. Even though Juniper is a very
troubled company that has never made money for
its investors, this is a smart investment.

I think, if anything, they paid too little for
it though. Security is H-O-T HOT right now
and with the war still going, every company
down to mom-and-pop grocery stores and local
gas stations is going to need better security
in all of their operations. The days where
data could travel untrusted are over. The bad
guys have to be kept away from the corporate
CROWN JEWELS.


After the unisphere disaster, this is a great
move. Maybe they can redirect the entire
operation toward security and start phasing out
their legacy electrical router business.

Their legacy business is in slightly less
danger now that Procket has collapsed, but
given the ALL-OPTICAL revolution going on
they still need to get into a new business
before legacy goes the way of the dinosaurs.

Big Red
50%
50%
Big Red,
User Rank: Light Beer
12/5/2012 | 2:29:27 AM
re: Juniper Buys NetScreen
Wow. You should go back to sleep as soon as you can. Your post makes NO sense and almost all of your points are backwards.

Big Red
jim_smith
50%
50%
jim_smith,
User Rank: Light Beer
12/5/2012 | 2:29:27 AM
re: Juniper Buys NetScreen
How did you guys miss this one?!

I wish I had some hint that this was coming...
Page 1 / 11   >   >>
Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Huawei Video Resource Center
Dr. Dong Sun Talks About Carriers' Digital Transformation & Huawei’s Telco OS

1|29|15   |   6:28   |   (0) comments


Dr. Dong Sun, Chief Architect of Digital Transformation Solutions at Huawei, discusses how telecom operators can become digital ecosystem enablers and deliver optimal user experiences that are in real-time, on-demand, all-online, DIY and social (ROADS).
LRTV Huawei Video Resource Center
Huawei's Chief Network Architect Talks about Network Experience & Operators’ Strategies

1|29|15   |   3:39   |   (0) comments


In the digital age, network experience has become the primary productivity especially for telecom operators. In this video, Wenshuan Dang, Huawei’s Chief Network Architect, discusses how carriers can tackle the challenge of infrastructure complexity in order to enhance business agility and improve user experience.
LRTV Documentaries
The Rise of Virtual CPE

1|27|15   |   01:38   |   (5) comments


As NFV strategies evolve from tests and trials to production telco networks, expect to hear a lot about virtual CPE (customer premises equipment) rollouts during 2015.
LRTV Documentaries
Optical Is Hot in 2015

1|23|15   |   01:56   |   (2) comments


Optical comms technology underpins the whole communications sector and there are some really hot trends set for 2015.
LRTV Custom TV
Policy Control in the Fast Lane

1|22|15   |   2:57   |   (0) comments


What's making policy control strategic in 2015 and beyond? Amdocs talks with Heavy Reading's Graham Finnie about the key factors driving change in the data services landscape. Find out what his policy management research reveals about the road ahead for policy control – and sign up for
LRTV Documentaries
Highlights From the 2020 Vision Executive Summit

1|21|15   |   4:33   |   (2) comments


In December 2014, Light Reading brought together telecom executives in Reykjavik, Iceland to discuss their vision for high-capacity networks through the end of the decade. The intimate, interactive meeting was set against the backdrop of Iceland's spectacular natural beauty. As one of the event's founding sponsors, Cisco's Doug Webster shared his company's ...
LRTV Huawei Video Resource Center
Huawei Pay-TV Partner Harmonic, Helping Carriers Accelerate 4K Video Deployment with Huawei

1|20|15   |   5:42   |   (1) comment


At IBC, Peter Alexander, Senior Vice President & CMO at Harmonic, speaks about the growing interest in pay-TV service and its branching into multiple devices.
LRTV Huawei Video Resource Center
Sony Marketing Director Olivier Bovis Discusses the Outlook for 4K and Cooperation With Huawei at IBC 2014

1|20|15   |   6:50   |   (0) comments


At IBC, Olivier Bovis, Marketing Director of Sony, speaks about the coming of the 4K era.
LRTV Huawei Video Resource Center
Huawei Pay-TV Partner Envivio, Helping Carriers Accelerate 4K Video Deployment

1|20|15   |   2:57   |   (0) comments


At IBC, Olivier Bovis, Marketing Director of Sony, speaks about the coming of the 4K era.
LRTV Huawei Video Resource Center
Pay-TV's Networked Future

1|20|15   |   6:29   |   (0) comments


At IBC, Jeff Heynen, Principal Analyst at Infonetics, speaks about the future of the pay-TV industry and its transition.
LRTV Huawei Video Resource Center
Jeff Heynen: Distributed Access Will Help MSOs Compete in the Future

1|20|15   |   2:26   |   (0) comments


At IBC, Jeff Heynen, Principal Analyst at Infonetics, speaks about moving to distributed access and the future trend of cable business.
LRTV Interviews
Cisco Talks Transformation

1|20|15   |   13:02   |   (0) comments


In December 2014, Steve Saunders sat down with Cisco VP of Products & Solutions Marketing Doug Webster at Light Reading's 2020 Vision executive summit in Reykjavik, Iceland. They spoke about Cisco's approach to network virtualization as well as how service providers can begin to monetize high-capacity networks through the end of the decade.
Upcoming Live Events
February 5, 2015, Washington, DC
February 19, 2015, The Fairmont San Jose, San Jose, CA
March 17, 2015, The Cable Center, Denver, CO
April 14, 2015, The Westin Times Square, New York City, NY
May 12, 2015, Grand Hyatt, Denver, CO
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 8, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 9, 2015, Chicago, IL
September 9-10, 2015, The Westin Galleria Dallas, Dallas, TX
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
November 11-12, 2015, The Westin Peachtree Plaza, Atlanta, GA
December 1, 2015, The Westin Times Square, New York City
December 2-3, 2015, The Westin Times Square, New York City
Infographics
Hot Topics
Google Continues Gigabit Expansion
Jason Meyers, Senior Editor, Gigabit Cities/IoT, 1/27/2015
Comcast Apologizes to 'A**hole' Brown
Mitch Wagner, West Coast Bureau Chief, Light Reading, 1/29/2015
Cablevision's New WiFi Try – Freewheeling Enough?
Mari Silbey, Independent Technology Editor, 1/26/2015
Overture Builds on NFV Foundation
Mitch Wagner, West Coast Bureau Chief, Light Reading, 1/27/2015
Bumper iPhone Sales Boost Apple Profits
Iain Morris, News Editor, 1/28/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Weekly Executive Interview
Join us live for Light Reading's interview with Jay Samit, the newly appointed CEO of publicly traded SeaChange International Inc. With a resume that includes Sony, EMI, and Universal, Samit brings a reputation as an entrepreneur and a disruptor to his new role at the video solutions company. Hear what he has to say about the opportunities in video, as well as the outlook for cable, telco, OTT and mobile service providers.