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Juniper & NetScreen: The Smell of SSL

One unmistakable sign of desperation is the willingness to overpay for something that, in another context, really isn’t all that special. Judging from the initial investor reaction, Juniper Networks Inc.’s (Nasdaq: JNPR) announced acquisition of NetScreen Technologies Inc. (Nasdaq: NSCN) has the definite odor of desperation. Based on the findings in Heavy Reading’s latest report, investors are right to smell something other than a sweet deal.

SSL VPN Products: A Heavy Reading Competitive Analysis offers a point-by-point comparison of every SSL VPN gateway now on the market, including NetScreen’s Neoteris Access Series product (now known as NetScreen-Secure Access 5000). It also includes full results of a major SSL VPN product test commissioned by Light Reading and undertaken by David Newman of Network Test late last year.

Without divulging too much information from the report (now on sale in the lobby for $3,450), let’s just say that NetScreen’s SSL VPN gateway is like Dick Gephardt – solid, dependable, predictable, and not exactly a leader of the pack. In essence, NetScreen-SA 5000 does what it’s supposed to do in a workmanlike manner, and it seems to have most (but not all) of the features that other SSL VPN gateways have. From a performance and feature standpoint, it’s a solid middle-of-the-road product.

There’s nothing inherently wrong with that, until you consider the price that Juniper apparently is willing to pay to own NetScreen. Granted, we’re talking bubble value here (in the form of stock, not cash money), but Juniper’s initial $4 billion proposal is mind-blowing, no matter how you try to rationalize it. Focusing again on the SSL VPN component, NetScreen entered the market less than three months ago when it acquired Neoteris in a stock-and-cash deal. The value of that deal: about $265 million, with after-deal incentives that could push the final value to about $300 million.

The Neoteris acquisition made sense for NetScreen, because it was a security player that lacked an SSL VPN security play – a huge hole in its product line. Neoteris gave NetScreen an immediate complement to its own IPSec VPN technology – an ideal technology fit, as our latest report explains. The $265 million price tag seemed a little high but within reason, considering established expectations for the SSL VPN market ($600 million in 2006, according to the crystal ball at Infonetics Research Inc.).

Now, of course, SSL VPN is only a part of NetScreen’s portfolio. But it arguably is one of the most promising parts. SSL probably will supersede IPSec VPNs in terms of product revenues. NetScreen’s other products (firewalls, intrusion prevention and detection, antivirus products) are nicely positioned in what will continue to be a high-growth business for years, but each of those products will face intense competition from lots of suppliers.

That competition includes Cisco Systems Inc. (Nasdaq: CSCO), which already has an SSL VPN product of its own and a hammerlock on the enterprise market that Juniper can only dream about. Cisco envy (or, more properly, Cisco fear and loathing) is being cited as the real reason behind Juniper’s bid for NetScreen. The speculation is that Juniper is now convinced that it can’t seriously compete with Cisco unless it makes a bold move into the enterprise market.

Using $4 billion in stock to buy a $300 million company like NetScreen clearly qualifies as a bold move. So does loading up a barrel with $100 bills and putting a match to it. When those Benjamins get lit, you definitely smell something. But it isn’t the sweet smell of success.

— Dennis Mendyk, Managing Editor, Heavy Reading

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