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Optical/IP

Juniper Steps Up ASIC Efforts

Juniper Networks Inc. (Nasdaq: JNPR) today announced it would spend $260 million to acquire Micro Magic Inc. (MMI), a privately held company specializing in integrated circuit solutions. The deal is Juniper's most expensive acquisition to date.

So, what does MMI do and why did Juniper want it? Not much is known about the Sunnyvale, California-based company, other than it makes development tools for the design of application-specific integrated circuits (ASICs). Juniper took down MMI’s Website before the deal was announced.

Even though MMI has been around for five years (two years longer than Juniper), it has produced only a minimal amount of revenue, says Randi Paikoff Feigin, Juniper's director of investor relations. Juniper officials claim the company is buying MMI for its team of engineers and the expertise they have acquired over the past five years.

“We’re not buying a company that makes components,” says Paikoff Feigin. “We’re acquiring the talent and the tools to add to our own expertise in developing new products.”

Under the terms of the agreement, Juniper common stock and cash worth approximately $260 million will be exchanged for all outstanding shares of MMI. Juniper expects a charge of approximately $24.7 million in the fourth quarter of 2000 for in-process research and development and the amortization of goodwill and deferred compensation. And for the full year of 2001, it expects to realize $113.4 million for the ongoing amortization of goodwill and deferred compensation associated with the acquisition.

Juniper’s CEO, Scott Kriens, is notoriously wary of acquisitions. Despite the meteoric rise in his company's stock price, Juniper has been relatively cautious on the acquisition front. The company acquired Layer Five, a developer of network hardware architecture and related software, last November for a paltry $19 million. The January 2000 acquisition of Pacific Advantage Ltd., an IP infrastructure systems company, only cost about $4 million.

While MMI's purchase price is far lower than what Juniper's rivals have paid for startups, it still breaks down to about $10.8 million for each one of MMI's 24 employees.

But buying talent rather than product falls in line with Juniper’s acquisition strategy up to this point, says Paikoff Feigin. Both Layer Five and Pacific Advantage were acquired for their personnel and potential rather than any specific product offering.

Juniper has already developed 11 different versions of its ASIC technology since its inception in 1997. The most recent incarnation is the Internet Processor II introduced last spring (see Juniper To Deliver Security Without Sacrifice). This custom chipset has helped Juniper routers cut into market leader Cisco Systems Inc.'s (Nasdaq: CSCO) market share.

Juniper stock closed down 2.12 (1.28 percent) at $164.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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