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Juniper Spikes M&A Rumors

Light Reading
News Analysis
Light Reading

Juniper Networks Inc. (Nasdaq: JNPR) CEO Scott Kriens was reported as saying he's got up to $1.5 billion to spend on new acquisitions.

Industry rumors persist that Juniper is looking for a way into the Ethernet switch market (see Juniper's Extreme Thoughts Are Back). So when Kriens reportedly told the Financial Times Deutschland Thursday that he's scoping out new M&A targets, a reaction was to be expected. Juniper claims Kriens was misquoted by the German press. A spokeswoman says his comments on potential M&A activity "were not reported accurately," and that while $1.5 billion is Juniper's published cash position, "it was not mentioned in conjunction with the company’s M&A policy during this interview."

She adds the company "always broadly monitors the marketplace, but we do not comment on acquisition policy beyond that."

On the report, Extreme Networks Inc.'s (Nasdaq: EXTR) stock edged up slightly yesterday, rising 10 cents, or 1.4 percent, to $7.06. That price values Extreme at $853 million. Other potential Ethernet switching targets include privately held Force10 Networks Inc. and Foundry Networks Inc. (Nasdaq: FDRY), though analysts believe they're less attractive propositions.

Foundry's stock dipped 14 cents, about 1 percent, to $13.50 on Thursday, valuing the firm at $1.85 billion.

But all of this could be much ado about nothing. Several sources tell Light Reading that in more intimate circles (and perhaps out of earshot of European journalists), Kriens has been poo-pooing the idea of buying Extreme, or any other Ethernet switch maker, even to the point of denigrating his competitors. The way Kriens sees it, buying an Ethernet switch company would simply plunge Juniper into the Ethernet port price-war, according to Scott Clavenna, Heavy Reading analyst. "He's said he doesn't want an Ethernet switch company because it's a commodity," says Clavenna.

But that hasn't stopped Juniper from buying other enterprise products, which may also be seeing pricing pressure. Juniper has already made one major leap into the enterprise sector this year with its $4 billion acquisition of security system vendor NetScreen (see Juniper Buys NetScreen). Since then, there's been concern about the revenue growth and margins in enterprise firewalls (see Juniper's NetScreen: Pricing Insecurity?).

Buying an Ethernet kit player would take Juniper even further into Cisco Systems Inc.'s (Nasdaq: CSCO) core territory, the enterprise networking market.

Juniper's share price closed up 42 cents, about 1.5 percent, at $28.70 on Thursday.

— Ray Le Maistre, International News Editor, and Scott Raynovich, US Editor, Light Reading

For the latest intelligence and analysis of next-generation telecom market opportunities, check out the coming Light Reading Live! event: Light Reading's Telecom Investment Conference, at the exclusive Plaza Hotel in New York City, on Wednesday, December 15, 2004.

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User Rank: Light Beer
12/5/2012 | 1:01:24 AM
re: Juniper Spikes M&A Rumors

User Rank: Light Beer
12/5/2012 | 1:01:24 AM
re: Juniper Spikes M&A Rumors
Kriens explicitly cited VOIP or Wireless companies.

JNPR will probably jump in to the whitehot VOIP sector with many greenfield applications in the design and deployment phases. These greenfield apps call for a lot of edge and core routers.
User Rank: Light Beer
12/5/2012 | 1:01:20 AM
re: Juniper Spikes M&A Rumors

IMHO, the NetScreen acquisition hasn't quite given Juniper any edge in the broader market. It probably has brought common cost savings to SG&A, but not to sales growth, gross margin or EBIT.

Although Juniper wouldn't quite detail the revenue breakdown last quarter, Marcel Gani kind of acknowledged that the NetScreen revenue was about ~94m for the year, which represents flat growth on a YoY basis. Compare that to over 25% YoY growth that NetScreen had prior to the acquisition.

So, my opinion is that Juniper was too hasty to dilute share value with the 4B+ purchase of NetScreen. Unless I am missing something that gives them a strategic advantage in the long run.

And let's not forget that Juniper is already in a commodity market with the J-series. Enterprise access is huge market and it is a no brainer why someone wouldn't go after it. The Ethernet switching market is no different; it is a commodity, but for a solution-based approach (i.e. enterprise routing and switching), Juniper will have to bite switching sometime soon. At least something like stackable 10/100/1000 switching.
User Rank: Light Beer
12/5/2012 | 1:01:18 AM
re: Juniper Spikes M&A Rumors
Marcel Gani kind of acknowledged that the NetScreen revenue was about ~94m for the year

That's $94m for the quarter. It is possible to attribute the weakish Netscreen year to significant churn in the sales organization. A lot of resumes on the street. It remains to be seen if they'll resume growth when it all settles down.

However, Netscreen indeed offers a diversification that JNPR needs. Telco/enterprise can be countercyclical in their spend. Technology-wise NSCN is positioned as well as any to grow to a $1bil line for JNPR. If it doesn't, it's a management problem.

Also, let's not forget that Netscreen sells a TON of boxes at <$1000. The 5's are commodity if I've ever seen one. They've built pretty good processes for staying price competitive.

So in my opinion, SK's just trying to talk the price tag down.
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