The annual rumor about Juniper Networks Inc. (Nasdaq: JNPR) acquiring an Ethernet player is making the rounds, with Extreme Networks Inc. (Nasdaq: EXTR) and Foundry Networks Inc. (Nasdaq: FDRY) among the names reportedly being considered.

Private company Force10 Networks Inc. would presumably be in the running as well; in fact, Light Reading has pegged the company as "crying out" for an IPO or acquisition (see Force10 Networks). But one source close to Force10 says that, although the companies have talked in the past, a Juniper deal is not in the works.

The rumor may have been what drove Extreme's stock up 50 cents (8%) to $6.89 early this afternoon. It could be affecting Foundry as well; that company's stock was up just 26 cents (2%) at $12.92 this afternoon, but it's up substantially from its Wednesday closing of $12.09.

(Juniper was contacted for this article but had not responded at press time; Force10 and Extreme declined official comment.)

Scuttlebutt about a Juniper-Ethernet marriage gets kicked around every couple of years, it seems (see Would Juniper Go to Extremes? and Juniper To Buy Extreme? ).

In fact, top sources in Silicon Valley have shed new light onto Juniper's past search for an Ethernet switching player. Here's what they say: Juniper started getting serious about shopping for an enterprise networking player about this time last year. The orginal thinking was that Juniper had a competitive routing and switching product in most of the same routing categories as archrival Cisco Systems Inc. (Nasdaq: CSCO) -- except in the category of the the Cisco 6500 series. So Juniper went out and kicked the tires for an enterprise Ethernet switching player.

Eventually, one source says, Juniper passed on both Extreme and Foundry. What was the hesitation? Apparently, Juniper looked down its nose at Extreme's switching technology, thinking it might do better internally. Foundry had management baggage, in that Juniper wasn't quite sure how to handle the strong leadership role of Foundry CEO Bobby Johnson, who is said to march to the beat of his own drum, and his drum only, says the source.

Now that the rumor is back, the natural question is whether Juniper would pay up. Extreme and Foundry are both cheaper than they would have been about a year ago -- although not by much. The price for either would still be hefty, albeit less than NetScreen. Extreme and Foundry carry market capitalizations of roughly $830 million and $1.8 billion, respectively. Force10, having raised $284 million, would probably not bother talking if Juniper wasn't talking at least $500 million (see Force10 Rakes It In).So why Extreme? Well, another thing Juniper is searching for, apparently, is a wireless switch, which Extreme happens to have. And the fact that Juniper has now moved more deeply into Cisco's enterprise turf with the NetScreen deal perhaps makes another acquisition more believable.

NetScreen was Juniper's battering ram into the enterprise, the logic goes. In fact, it dominated the conversation at Juniper's analyst meeting last week. The acquisition of an Ethernet switching player would give Juniper a second substantial burst of products to bring into the enterprise. Those products might also blend well with NetScreen security, helping the company realize its "infranet" vision of a network that adjusts itself to provide proper QOS and security depending on the application (see Juniper's Infranet Takes Baby Steps).

Other analysts point out that having enterprise customers isn't a bad thing, especially when you are selling to service providers that are trying to build networks that integrate with existing Fortune 500 network technology.

"The carriers have realized that with voice being commoditized, business customers are more important," says Jim Kelleher, an analyst with Argus Research Co. "Juniper has seen the kind of leverage Cisco can get in helping service providers sell to business customers."

The timing could be right as well. The last time this rumor made the rounds was in February, right after Juniper announced the $4 billion NetScreen deal. Analysts were skeptical that Juniper would take another big bite right away. Now, with NetScreen sewn up, and with the acquisition having gone smoothly, according to many, another deal looks less far-fetched (see Juniper/NetScreen Merger OK'd).

It's also possible Juniper is angling to get into the 10-Gbit/s Ethernet market, and any of the three alleged acquisition targets would fit the bill. According to figures from Synergy Research Group Inc., Foundry came in second to Cisco with a 16 percent market share when it came to number of 10-Gbit/s Ethernet ports shipped in the second quarter of 2004 (Cisco's share was 70 percent). Force10 and Extreme held market shares of 9.5 percent and 2.7 percent, respectively, while Juniper didn't even make the chart.

— Craig Matsumoto, Senior Editor, Light Reading

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