Optical/IP Networks

Juniper Buys Pacific Broadband

Juniper Networks Inc. (Nasdaq: JNPR) today announced its most significant acquisition to date. After the markets closed, it announced that it will buy Pacific Broadband Communications (PBC), a maker of cable network aggregation equipment, for $200 million see Conexant Posts Q3 Results).

Light Reading reported earlier today that the two parties were nearing an announcement of the deal. Sources said the deal was actually struck last week.

Pacific Broadband, a 150-employee company based in San Jose, Calif., markets a Cable Modem Termination System (CMTS) designed to upgrade cable systems for data services. Both Juniper and Scientific-Atlanta Inc. (NYSE:SFA) are investors in the company.

While the cost of the acquisition is not huge, it is important for several reasons. For one, this is the first acquisition for Juniper that involves the integration of an entirely new product line and would mark a split from Juniper's primary focus on internal development of routing products. CEO Scott Kriens has reiterated recently that Juniper would continue focusing on routing products. Secondly, it would mark a more aggressive move into edge-routing gear and cable equipment.

Juniper has made other acquisitions in the past. Layer Five, a small software and hardware company, was acquired in 1999 for $19 million. And in January of 2000, Juniper announced the $4 million acquisition of Pacific Advantage Ltd., a next-generation IP infrastructure systems company. Then, in December of last year it bought Micro Magic Inc. for $260 million.

Analysts familiar with Juniper and Pacific Broadband say that the deal makes sense for both companies. Juniper has been struggling to gain traction in the edge-router market. In the second quarter of 2001, Cisco Systems Inc. (Nasdaq: CSCO) had about 66 percent of the market. Juniper, which introduced its M5 and M10 edge routers over a year ago, came in a distant second with only 13 percent market share. Riverstone Networks Inc. (Nasdaq: RSTN) was close behind with 12 percent.

The addition of the Pacific Broadband CMTS gear could help Juniper get a foot in the door with cable operators, says Steve Kamman, an analyst with CIBC World Markets.

"Juniper has been looking for a way to break into the edge networking market," he says. "Selling two products into an account could be better than one."

Cisco currently dominates the CMTS market with its Cisco uBR1001. Other players include Cadant Networks, Terayon Communication Systems Inc. (Nasdaq: TERN), and Arris Group Inc. (Nasdaq: ARRS), which is funded by Nortel Networks Corp. (NYSE/Toronto: NT). It has larger competitors like Motorola Inc. (NYSE: MOT), which bought RiverDelta for $300 million this summer, and ADC Telecommunications Inc. (Nasdaq: ADCT), which recently bought BAS.

Pacific Broadband's product supports the data-over-DOCSIS (cable service interface specification) 1.0. Kriens said on the call that it is working on DOCSIS 1.1 certification. What sets the company apart from the rest is that it uses a custom designed chipset to provide higher performance.

On the conference call this afternoon, Kriens told analysts and press that the purchase of Pacific Broadband is consistent with the company's strategy of providing fundamental transport for data services from the core of the network to the edge and now into the access market. He believes that the total revenue for the CMTS market will be about $500 million and he expects that it will grow to $1.3 bill by 2005. "We see the ability to repeat the success we've had in core and at the edge with Pacific Broadband," he said.

Pacific Broadband has not shipped a product yet, but it is currently beta testing its CMTS. Earlier this year it signed a distribution contract with with investor Scientific Atlantic. Kriens said on the call that he plans to honor that agreement. Juniper has had success with OEM agreements in the past, generating significant revenue and marketshare for the distribution of its core routers through Ericsson AB (Nasdaq: ERICY) and Nortel channels.

— Marguerite Reardon, Senior Editor, Light Reading
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Belzebutt 12/4/2012 | 7:35:24 PM
re: Juniper Buys Pacific Broadband At least Juniper seems to think so. Good to know that my cable won't be taken away anytime soon (hopefully)!
Facts4GoodGuy 12/4/2012 | 7:35:17 PM
re: Juniper Buys Pacific Broadband The price seems to be lower than expected.
grebenc 12/4/2012 | 7:35:15 PM
re: Juniper Buys Pacific Broadband Anyone out there know of any comparable companies that may get picked off as well?
grebenc 12/4/2012 | 7:35:15 PM
re: Juniper Buys Pacific Broadband Anyone out there know of any comparable companies that may get picked off as well?
MKTG_Hack 12/4/2012 | 7:35:10 PM
re: Juniper Buys Pacific Broadband This deal is interesting politically since one of the founders of Juniper was the angel investor in Narad Networks. Wonder why they didn't buy them??

russ4br 12/4/2012 | 7:35:02 PM
re: Juniper Buys Pacific Broadband MH,

Narad offers solutions to upgrade the HFC-plant itself, overcoming RF and topological limitations of the current architecture.

Pacific Broadband offers CMTS solutions - that's the IP processing node at the head-end of a HFC plant.

Interesting, besides one of Juniper founders, Narad also has Dr. Bob Metcalfe (inventor of Ethernet) on the Board of Directors.


- russ
Facts4GoodGuy 12/4/2012 | 7:34:52 PM
re: Juniper Buys Pacific Broadband Maybe Raza is running out of money and has to sell Pacific Broadband cheap to survive.
russ4br 12/4/2012 | 7:34:51 PM
re: Juniper Buys Pacific Broadband F4GG,

Patience pays dividends in the end. Just look at Cisco:

Crescendo 1993
Kalpana 1994
Grand Junction 1995
Granite Systems 1996

Today their Catalyst line of Layer2/3 switches is the indisputable market leader in every category.

They made all these acquisitions, without paying outrageous sums (by today's standards). However, you probably remember people in awe in 96 when Granite sold to Cisco for $200M+, with less than 200 staff and no product.

With some economists saying this might be the worst recession in 40-years, getting mid-90s premium is a good deal for a start-up. And just imagine those engineers that kept their Cisco shares until the Nasdaq hit 5000!

The start-up dream is still well and alive.

- russ
HarveyMudd 12/4/2012 | 7:34:47 PM
re: Juniper Buys Pacific Broadband Juniper is now a desperate company. It now does not know how to enhance its market share in the router business. It is really an act of desperation on the part of Juniper.

One has to realize tghat how AT&T cheated its share holders on the promise of providing voice, data, telephony and multimedis services on cable. There was a massive retreat by AT&T causing shareholders to lose Billions of dollars.
Belzebutt 12/4/2012 | 7:34:41 PM
re: Juniper Buys Pacific Broadband There's only so much money to be made in routers, and competition is tough. The "laser-like focus" on core routing could only take them so far and then growth had to stop, I'm sure Juniper knew that all along. This isn't a surprising move, it just had to happen some day.
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