Ethernet equipment

Juniper Shopping for Atrica?

The talk of Juniper Networks Inc. (Nasdaq: JNPR) buying its way into Ethernet switching has found a new target: privately held Atrica Inc.

During the recent U.S. holiday, reports in Israeli publications including The Marker said Juniper is considering such a deal. One question is whether Atrica, having raised $170 million in venture funding, would be interested, as it seems to be a good IPO candidate (see LR Tags Top IPO Candidates).

Juniper officials could not be reached for comment yesterday afternoon, but Atrica says it isn't actively seeking suitors.

"The goal is to build the company and continue to build its profitability, then take it to the public marketplace," says Nan Chen, Atrica vice president of marketing.

Juniper has long been rumored to be shopping for an Ethernet vendor. Extreme Networks Inc. (Nasdaq: EXTR) frequently emerges as a candidate, but no deal has ever been closed (see Juniper's Slow Shopping Trip and Extreme Juniper Rumors Are Back).

Atrica could be a more useful option to Juniper, though.

Consider: Analysts say Juniper needs an Ethernet play if it's to battle Cisco Systems Inc. (Nasdaq: CSCO) head-on in enterprise markets. That would give Juniper a shot at dislodging Cisco in some key customer accounts. But Juniper CEO Scott Kriens has decried that idea, pointing out the law of Ethernet gravity: Margins are destined to sink. He's said he doesn't want Juniper pushing into a commodity Ethernet business (see Juniper Spikes M&A Rumors).

Moreover, the likely acquisitions come with big price tags: Extreme and Foundry Networks Inc. (Nasdaq: FDRY) are public, and privately held Force10 Networks Inc. is said to be a $500 million pickup were it to sell, thanks to IPO ambitions.

Buying Atrica would give Juniper an Ethernet product line that's carrier-focused and not a Layer 2 commodity. Because Atrica targets service providers, the deal would augment Juniper's traditional carrier business.

"The cool thing about Atrica and Juniper hooking up would be that they could have the Ethernet switches sit in front of the router," says Stan Hubbard, an analyst with Heavy Reading. That would give Juniper a one-two punch similar to Alcatel's (NYSE: ALA; Paris: CGEP:PA) 7450 and 7750, but with a low-end box that Alcatel doesn't have, Hubbard says (see Alcatel Eyes Video Market and Atrica Rounds Out the Edge).

Atrica could also tie into Juniper's Infranet concept, where all segments of the network would collaborate to provide security and quality of service (QOS) appropriate to each application. Under this plan, enterprise networks in the Infranet would necessarily take on some "carrier-class" qualities, as the LAN would have to provide some of those security and QOS elements. Atrica's technology, adapted to the enterprise, could help seed the edges of the Infranet (see Juniper's Infranet Takes Baby Steps and Juniper Intros Enterprise Infranet).

Carrier-class Ethernet is a hot market in general, with major players such as BT Group plc (NYSE: BT; London: BTA) embracing the concept. Enthusiasm for Ethernet is growing among both established telecom players like AT&T Corp. (NYSE: T) and relative upstarts such as Colt Telecom Group plc (Nasdaq: COLT; London: CTM.L) and Time Warner Inc. (NYSE: TWX), Hubbard writes in "Telecom's Technology Hot Spots," a recent Light Reading Insider report. (See BT Puts Ethernet at Heart of 21CN, Report: Carrier Ethernet Booming, MEF Sets 'Carrier Ethernet' Bar, Report: Ethernet Exploding in China, and HR Sees Ethernet Services Explosion.)

Atrica has championed carrier Ethernet since its founding in 2000, a role that earned the company a Leading Lights award from Light Reading in December (see LR Reveals Leading Lights Winners).

But Atrica's momentum appears to have stalled, at least in terms of announced deals. Key wins with France Telecom SA (NYSE: FTE) and Deutsche Telekom AG (NYSE: DT) earned Atrica recognition but didn't trigger a domino effect of big-name wins. Deals have flowed steadily for Atrica but have come from lesser names such as Macedonia's national operator (see Atrica Supplies Deutsche Telecom GSN and Atrica Names Customers, Partners). Atrica did win repeat business with France Telecom though, Hubbard notes.

And Atrica is facing increased competition even beyond the omnipresent Cisco. Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) introduced a carrier Ethernet box at CeBIT, and Siemens AG (NYSE: SI; Frankfurt: SIE) has been spouting carrier Ethernet news including a win with BT's 21CN network. Riverstone Networks Inc. (OTC: RSTN.PK), pinning its revival on Ethernet, is touting features such as high availability (see Marconi to Unveil Ethernet Platform, Siemens Picked for BT's 21CN, and Riverstone Enhances Ethernet Router).

Should a Juniper offer come around, Atrica's decision would depend on its investors' faith in their IPO chances. Atrica's most recent funding round came in 2003, but the company says it's not in need of immediate cash (see Atrica Raises More Cash).

"We're certainly OK from a funding perspective. That's not to say there won't be any additional funding," Chen says.

— Craig Matsumoto, Senior Editor, Light Reading

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