Juniper Scoping Out Unisphere?

Juniper Networks Inc. (Nasdaq: JNPR) is going shopping again -- and this time it’s interested in Unisphere Networks Inc., according to industry sources.

One source familiar with the dealings says that Unisphere, based in Westford, Mass., is looking for something in the ballpark of $1 billion and that Juniper has already offered substantially less. But despite the "lowball" offer, the source describes the talks as serious and ongoing.

This morning, Unisphere announced a deal that supplies more fodder for the rumor -- it plans to spin its packet voice equipment business back into its parent company, Siemens Information and Communications Networks Inc. (see Siemens Absorbs Unisphere's Voice Biz). Siemens formed Unisphere in 1999, giving its President, Jim Dolce, a bundle of cash to buy several startups.

Unisphere got the voice-packet business through the acquisition of startup Castle Networks (see Unisphere Trips, Stumbles ). Though the Castle product has produced revenues, it hasn't been nearly as successful as Unisphere's edge-routing products have been.

Dolce says the move to spin off the voice business was a reaction to the changing nature of the market.

"The rationale of this is that the business climate has changed dramatically," says Dolce. "Incumbents that buy packet-voice products prefer to buy the products from established equipment providers."

As to whether the spinoff is preparation for a possible acquisition by Juniper, Dolce says: "This is not part of a bigger event. What we will do now is focus all of our resources on the broadband access and edge-routing market."

The sour telecom equipment market has blocked Unisphere's progress toward an IPO, which was the original idea (see Unisphere Tunes Up for IPO and Unisphere's Uphill IPO Battle). So it's not unlikely they'll be looking at additional exit strategies. Spinning the packet-voice business back into Siemens might make the company more attractive to a suitor -- especially Juniper.

Will another deal get done? Who knows? What is known is that Juniper has been actively on the prowl for an acquisition and that Unisphere makes a lot of sense -- probably far more sense than a candidate such as Redback Networks Inc. (Nasdaq: RBAK) (see Redback and Juniper Talked, Balked).

“It would make a lot of sense. It’s a logical step for them," says Tim Kraskey, a general partner at Boston-based YankeeTek Ventures, because Juniper and Unisphere each have routing, "but Unisphere also supplies the aggregation piece, which Juniper doesn’t have.”

Kraskey says that Siemens taking control of the voice business also makes sense, because that is Siemens's strength. "Splitting out the data and the voice business makes sense -- Unisphere has been getting good traction with the voice business in Europe, and that's where Siemens is strong." Kraskey also says that Unisphere's edge router is a "damn good product" and that anybody looking to gain market share in that area, such as Juniper, would have to be looking at it.

"Unisphere's been gaining market share from somebody."

Both Juniper and Unisphere are trying to eke out gains against leader Cisco Systems Inc. (Nasdaq: CSCO). For Juniper, the purchase of Unisphere would serve the multiple roles of eliminating a competitor, giving it a solid edge-router and traffic aggregation product, and adding revenues (see Unisphere Cutting the Edge and AMCC Names Director).

Other sources confirm that Siemens wants to unload Unisphere, now that an IPO appears unrealistic. Siemens has been hit by the same pressures as the rest of the telecom industry and has been looking to raise cash and cut costs where it can (see Optisphere: Is It Safe? ).

"Yes, Siemens wants out of that deal,” says one source.

Dolce says that Unisphere has "gotten over" its frustration over a potential IPO. "It's not fair to say we're frustrated. We put that behind us last year. Right now, we're focused on building the business."

For the nine months ended June 20, 2001, Unisphere had $127 million in revenues, according to public filings. Assuming its fourth-quarter 2001 revenues were relatively flat from that run rate (not an outrageous assumption in this economy), the company may have had about $170 million in revenue in 2001. Based on those revenues, a $1 billion price tag would represent approximately a six-to-one price-to-sales multiple.

Juniper itself, in comparison, has trailing twelve-month revenue of about $600 million and a market capitalization of $3.3 billion, giving it a price-to-sales ratio of about five.

Juniper declined to comment on this story.

— R. Scott Raynovich, US Editor, Light Reading
http://www.lightreading.com