Juniper Buys Pacific Broadband
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