Light Reading

Juniper's Slow Shopping Trip

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News Analysis
Light Reading
2/18/2005
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Everybody's favorite game these days appears to be "Pin the Acquisition on the Juniper." But Juniper Networks Inc. (Nasdaq: JNPR) doesn't seem to be in any rush to close a deal.

Analysts and industry sources believe the company is still poised to buy a company in some promising networking categories, but it appears to be quite a picky shopper.

CEO Scott Kriens and other officials were peppered with the acquisition questions during Juniper's Analyst Day yesterday, but in general they kept mum on specific plans. Kriens would only offer that Juniper expects to make some acquisitions someday but that the company is in no hurry.

"No, we don't have all that we will need -- although I'm not sure I would use the word 'need.' We don't today take full advantage of the opportunity to lead this change," he said.

That "change," as described by Kriens, is "assured networking," where the Internet packs the reliability and quality of service (QOS) to deliver a wide suite of services. Kriens sees a chance for Juniper to spark the transition to this new network, through product development and activities such as the Infranet Initiative (see Juniper's Infranet Takes Baby Steps). In short, Kriens didn't offer up much new to go on. After all, for months industry sources have said Juniper has been kicking the tire on a number of deals (see Sources: Juniper Eyeing Trapeze). Specifically, several industry sources say Juniper ranks its needs as follows: Layers 4-7 switching; wireless LAN switching; and high-end Ethernet switching (see Juniper's Extreme Thoughts Are Back and Airespace Creates Turbulence).

Lately, experts say, the focus has turned to Layers 4-7 processing, occupied by the likes of F5 Networks Inc. (Nasdaq: FFIV), NetScaler Inc., and Radware Ltd. (Nasdaq: RDWR). WAN acceleration gets tossed into the mix, too, with Peribit Networks Inc. rumored as a possibility. Juniper's obsession with traffic processing "strongly suggests" an acquisition along those lines could come "sometime in 2005," writes Smith Barney analyst Alex Henderson in a report this morning.

Any acquisitions would have to tie into those long-term goals. Kriens reiterated his stance that Juniper isn't going to buy companies just to increase revenues or spur growth.

None of this slaked analysts' thirst for an acquisition, however. While most are willing to believe Juniper isn't in a rush, nearly all seem to agree the company is -- or should be -- on the prowl.

Analysts particularly like the Layers 4-7 idea because, unlike Ethernet switching, it wouldn't torpedo Juniper's 70 percent gross margins. In fact, Kriens in the past has downplayed the prospects of Juniper buying an Ethernet switch maker precisely because of the margin question (see Juniper Spikes M&A Rumors). It now appears Juniper's attention is on "high-end, high-margin companies in the higher layers of the OSI stack," writes analyst Tal Liani of Merrill Lynch & Co. Inc.

Moreover, some believe the likely Ethernet purchases -- Extreme Networks Inc. (Nasdaq: EXTR), Force10 Networks Inc., and Foundry Networks Inc. (Nasdaq: FDRY) -- seem to be too pricy and cumbersome for Juniper's taste.

"Our view leaving the meeting is that Juniper could well buy someone, but more likely a smaller player with a clear focus on differentiated security and/or QOS rather than a hardware platform and/or a company with a large existing revenue/installed base," writes analyst Steve Kamman of CIBC World Markets, in a report issued this morning.

Juniper officials queried by Light Reading at the analyst meeting didn't comment on possible acquisition plans (of course).

— Craig Matsumoto, Senior Editor, Light Reading

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WildRumpus
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WildRumpus,
User Rank: Light Beer
12/5/2012 | 3:26:03 AM
re: Juniper's Slow Shopping Trip
Everyone who follows this space knows that Juniper is targeting Force 10. The speculation hit a fever pitch when Dick Kramlich (NEA) stepped off the Juniper Board (He was on both boards) in order to avoid any appearance of conflict.

This is not if, but when.
change_is_good
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change_is_good,
User Rank: Light Beer
12/5/2012 | 3:26:02 AM
re: Juniper's Slow Shopping Trip
i hope not.

force10 is just another participant at the dance with a nice little dress on. once you wake up, you know what you did, and will walk away with your tail between your legs knowing you could have done a little better with some effort.
adaptation
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adaptation,
User Rank: Light Beer
12/5/2012 | 3:26:01 AM
re: Juniper's Slow Shopping Trip
change_is_good:

so, which of the laid-off engineers from force10 might you be?
Iipoed
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Iipoed,
User Rank: Light Beer
12/5/2012 | 3:26:00 AM
re: Juniper's Slow Shopping Trip
Curious why you think FDRY is purely vanilla. They have a strong 4-7 story. Have shipped the most 10 gig ports. Have 7000+customers that are mostly return customers. 700m in the bank and no debt.
Unfortunately BJ and Scott Kirens may not be a match made in heaven. But for either company to begin to really make an impact into Crisoworld they need each other.
EXTR is a commodity player with questionalbe technology, way too many var channels, the Avaya relationship is bringing in very low margins deals and requiring a lot of additiona technical support.
F10 does not have the product portfolio that Juniper needs i.e. stackables, 4-7, no customer base, and no money.
lilgatsby
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lilgatsby,
User Rank: Light Beer
12/5/2012 | 3:26:00 AM
re: Juniper's Slow Shopping Trip
I agree that F10 would be the best "technology" company, in the 10G space, for JNPR to acquire. The real question is the price tag. F10 has a few feathers in its cap but a sizeable VC list to cover. They certainly have less baggage than EXTR or FDRY, but also have fewer customers.

Mkt cap - FDRY/$1.4b, EXTR/$750m, F10/$500m??

FDRY and EXTR are as vanilla as you get, at least F10 - even if only perceived - doesn't fall into this category, yet.

lg
lilgatsby
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lilgatsby,
User Rank: Light Beer
12/5/2012 | 3:25:57 AM
re: Juniper's Slow Shopping Trip
A. Stackables is a low margin market that is an add-on the core switching, nice for an end to end story but lowers the bar to include the SMC, ATI, Milan...low end players.

B. 10G shipped ports is misleading. You'll see it mentioned as Layer-3 and Layer-2, it also includes uplink ports on stackables, it also includes 8G capable ports that were originally shipped as 10G ports. The criteria as the 10G shipped ports leader is blurred and really not that important.

C. The 4-7 story is the meat on the bone, but is it enough? What does this equate to in revenue? Not sure.

D. The cash w/o debt is a big plus, but don't know if it makes up for an inflated cap.

E. 7,000 customers is a great point if they are revenue generating on a continued basis. Most enterprise accounts are one sale with minor adds. FDRY has nominal carrier success, which is an area that can be a reoccurring revenue stream.

I agree, EXTR is a bad proposition. I do think F10 offers something new with their datacenter and high-end switching focus. They are not perceived as dilluted in 5 different directions but seem very focused on a growing market. Few customers and a pretty sizeable VC tag are the down side...but if JNPR were to buy a 10G player tomorrow I'd put my money on these guys.

My 2cents...
lg

----------------------------------------------
Curious why you think FDRY is purely vanilla. They have a strong 4-7 story. Have shipped the most 10 gig ports. Have 7000+customers that are mostly return customers. 700m in the bank and no debt.
Unfortunately BJ and Scott Kirens may not be a match made in heaven. But for either company to begin to really make an impact into Crisoworld they need each other.
EXTR is a commodity player with questionalbe technology, way too many var channels, the Avaya relationship is bringing in very low margins deals and requiring a lot of additiona technical support.
F10 does not have the product portfolio that Juniper needs i.e. stackables, 4-7, no customer base, and no money.
laserbrain2
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laserbrain2,
User Rank: Light Beer
12/5/2012 | 3:25:57 AM
re: Juniper's Slow Shopping Trip
Mkt cap - FDRY/$1.4b, EXTR/$750m, F10/$500m??

see the problem here is that when you factor sales, profitability, cash, and customers the valuation is more like

Mkt cap - FDRY/$1.4b, EXTR/$750m, F10/$150m

I'm sure as much as JNPR wants to do this deal, they can't overpay as much as NEA et al need them to. I could see them paying maybe even twice that, but it's still too low for all the $$$ into F10.
Betelgeuse
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Betelgeuse,
User Rank: Light Beer
12/5/2012 | 3:25:57 AM
re: Juniper's Slow Shopping Trip
Speaking of Extreme, any thoughts of Extreme in the Federal space? Do they currently have any presence? Would they have a shot if they beefed up their federal sales force?
rexspaniel
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rexspaniel,
User Rank: Light Beer
12/5/2012 | 3:25:56 AM
re: Juniper's Slow Shopping Trip
lipoed wrote:
>Curious why you think FDRY is purely vanilla. ...
> Have shipped the most 10 >gig ports...

Actually, this perception of Foundry is not close to
true. You may not like Cisco, but they have shipped
about 10x the 10Gig ports that Fdry has.
If you read the claims, Fdry claims #1 in
"Layer 3" 10 Gig ports.

The perception is due to what IMHO is a
moronic definition of "Layer 3" by the
Dell'Oro group which publishes the numbers
on which Foundry bases its claim.

The "Layer 3" definition hinges upon whether
Dell'Oro (these people are not technologists,
they are bean counters) thinks Layer 3 is
being done on the same linecard on the 10Gig
port. If you do full routing and wirespeed forwarding, but the intelligence is centralized,
vs. on the same linecard, Dell'Oro doesn't count
it as Layer 3. This is beyond stupid.

If you don't like Cisco, you should be happy,
because they get screwed by Dell'Oro's stupidity,
to the benefit of Foundry.

light-headed
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50%
light-headed,
User Rank: Light Beer
12/5/2012 | 3:25:56 AM
re: Juniper's Slow Shopping Trip
iipoed-Scott R.,

Notice that Foundry actually is valued LESS by the market than EXTR. EXTR has 200M in debt and FDRY has 600M in cash. Once you look at this minus all the other acctng tricks they are almost equal value or EXTR is a little more. Wall Street has little respect or trust for FDRY business plan.

I think that FDRY is executing well in the Federal Space (BJ is always good finding a nipple to suck until it goes dry - remember Exodus and AOL? Soon the Bush budget reality will dry up that revenue too) EXTR has terrible Sales, Mktg and Executives. No Focus.

I will say that i think the EXTR X-OS and their new stackables are better than FDRY technology. Too bad nobody knows or cares about them. FDRY L4-7 is overrated and a small % of overall sales. F5 does it better, just ask Karl Triebes...
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