Optical/IP Networks

Juniper's Slow Shopping Trip

Everybody's favorite game these days appears to be "Pin the Acquisition on the Juniper." But Juniper Networks Inc. (Nasdaq: JNPR) doesn't seem to be in any rush to close a deal.

Analysts and industry sources believe the company is still poised to buy a company in some promising networking categories, but it appears to be quite a picky shopper.

CEO Scott Kriens and other officials were peppered with the acquisition questions during Juniper's Analyst Day yesterday, but in general they kept mum on specific plans. Kriens would only offer that Juniper expects to make some acquisitions someday but that the company is in no hurry.

"No, we don't have all that we will need -- although I'm not sure I would use the word 'need.' We don't today take full advantage of the opportunity to lead this change," he said.

That "change," as described by Kriens, is "assured networking," where the Internet packs the reliability and quality of service (QOS) to deliver a wide suite of services. Kriens sees a chance for Juniper to spark the transition to this new network, through product development and activities such as the Infranet Initiative (see Juniper's Infranet Takes Baby Steps). In short, Kriens didn't offer up much new to go on. After all, for months industry sources have said Juniper has been kicking the tire on a number of deals (see Sources: Juniper Eyeing Trapeze). Specifically, several industry sources say Juniper ranks its needs as follows: Layers 4-7 switching; wireless LAN switching; and high-end Ethernet switching (see Juniper's Extreme Thoughts Are Back and Airespace Creates Turbulence).

Lately, experts say, the focus has turned to Layers 4-7 processing, occupied by the likes of F5 Networks Inc. (Nasdaq: FFIV), NetScaler Inc., and Radware Ltd. (Nasdaq: RDWR). WAN acceleration gets tossed into the mix, too, with Peribit Networks Inc. rumored as a possibility. Juniper's obsession with traffic processing "strongly suggests" an acquisition along those lines could come "sometime in 2005," writes Smith Barney analyst Alex Henderson in a report this morning.

Any acquisitions would have to tie into those long-term goals. Kriens reiterated his stance that Juniper isn't going to buy companies just to increase revenues or spur growth.

None of this slaked analysts' thirst for an acquisition, however. While most are willing to believe Juniper isn't in a rush, nearly all seem to agree the company is -- or should be -- on the prowl.

Analysts particularly like the Layers 4-7 idea because, unlike Ethernet switching, it wouldn't torpedo Juniper's 70 percent gross margins. In fact, Kriens in the past has downplayed the prospects of Juniper buying an Ethernet switch maker precisely because of the margin question (see Juniper Spikes M&A Rumors). It now appears Juniper's attention is on "high-end, high-margin companies in the higher layers of the OSI stack," writes analyst Tal Liani of Merrill Lynch & Co. Inc.

Moreover, some believe the likely Ethernet purchases -- Extreme Networks Inc. (Nasdaq: EXTR), Force10 Networks Inc., and Foundry Networks Inc. (Nasdaq: FDRY) -- seem to be too pricy and cumbersome for Juniper's taste.

"Our view leaving the meeting is that Juniper could well buy someone, but more likely a smaller player with a clear focus on differentiated security and/or QOS rather than a hardware platform and/or a company with a large existing revenue/installed base," writes analyst Steve Kamman of CIBC World Markets, in a report issued this morning.

Juniper officials queried by Light Reading at the analyst meeting didn't comment on possible acquisition plans (of course).

— Craig Matsumoto, Senior Editor, Light Reading

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