Two days after Juniper Networks Inc. (Nasdaq: JNPR) announced its most significant acquisition to date, investors and analysts are asking questions (see Juniper Buys Pacific Broadband ). At the UBS Warburg Global Telecom Conference in New York City, Juniper CFO Marcel Gani on Wednesday addressed these questions and give more insight into the strategy behind the $200 million acquisition of Pacific Broadband Communications (PBC). But some questions still remain unanswered.

Traditionally, Juniper has been very selective about its acquisitions. Up to this point it has mainly acquired companies for talent rather than products. In many instances the company has partnered or invested in companies rather than buying them outright. Softswitch maker Sonus Networks Inc. (Nasdaq: SONS) is a good example of this.

But this time Juniper decided to buy. Why? During his remarks, Gani stated that the acquisition was a logical extension of Juniper’s strategy to bring IP capabilities into the access space. What’s more, he expects the cable modem termination system (CMTS) market to be a lucrative one for Juniper, growing from $300 million to $500 million by 2005.

"There is a significant opportunity in the CMTS market," he said. "And I think that the Pacific Broadband solution is a competitive offering. But it also gives us an opportunity to work with MSOs [multiple systems operators, a.k.a. cable companies] so that we can give them a complete solution.”

Analysts at the conference conjectured that the CMTS market itself is of little importance to Juniper and that the company's reason for buying Pacific Broadband has more to do with selling more routers than extending the reach of IP.

“The reason they bought Pacific Broadband is to sell more routers," says Anton Wahlman, senior analyst with UBS Warburg covering broadband access. "They couldn’t give two sh*ts about the CMTS market.”

Other questions came up about the product strategy. For now, Gani says, the company plans to sell the Pacific Broadband product as it is, a separate CMTS unit. While he wouldn’t comment directly on future product plans, he alluded to a product that would combine Juniper’s routing functionality with the cable aggregation functionality of the Pacific Broadband product.

But some key questions still remain. For one, it is unclear exactly when the Pacific Broadband product will be shipping to customers. "The question is whether or not Pacific Broadband will be able to get a product to customers early enough to win business in the first part of this year," said Wahlman.

The cable market has had a slow beginning, but analysts like Wahlman predict that there will be a sharp uptake in the first half of 2002. Already several of Pacific Broadband’s competitors have begun shipping their products. For example, RiverDelta, which was bought by Motorola Inc. (NYSE: MOT) in July, has been shipping for the past few quarters, as has ADC Telecommunications Inc. (Nasdaq: ADCT). Cisco Systems Inc. (Nasdaq: CSCO) currently dominates the market with its uBR7200, a product it has been selling for the past three years. But Cisco's next-generation platform, the uBR10000, is still not shipping in volume, said Wahlman.

Another unanswered question is what will happen with Scientific-Atlanta Inc. (NYSE:SFA). The company is an investor in Pacific Broadband and had signed an exclusive OEM deal with the startup. While Gani reiterated Juniper’s commitment to the contract, it is unclear how this will play out.

"I think Juniper is going to want to have direct contact with these customers to form relationships with cable operators," said Wahlman. "I just don’t see what Scientific Atlanta could possibly get out of this deal."

While Gani did not revise or give insight into future guidance, he did leave investors with a little bite to nibble on, by suggesting that gross margins will continue to be above 60 percent in the next quarter.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com