Juniper Picks Up NetScreen

In another sign that the security market-and the technology sector in general-is on the rebound, Juniper Networks Inc. agreed to acquire security appliance maker NetScreen Technologies Inc. for $4 billion in stock. Should Cisco be concerned?

In another sign that the security market—and the technology sector in general—is on the rebound, Juniper Networks Inc. agreed to acquire security appliance maker NetScreen Technologies Inc. for $4 billion in stock.

The purchase price is a premium of more than 50 percent for NetScreens shareholders. The companys stock was trading at $26.40 at the end of last week and had a market capitalization of $3.25 billion. Each NetScreen shareholder will receive 1.4 shares of Juniper stock.

NetScreen, based in Sunnyvale, Calif., is one of a growing number of security appliance makers, and its acquisition by Juniper positions the combined company to compete with larger security and networking players, analysts said.

"Juniper feels like they need a strong security play to compete with Cisco [Systems Inc.], and NetScreen is the obvious choice because their stuff is more network-friendly," said Pete Lindstrom, an analyst at Spire Security LLC, in Malvern, Pa. "It makes a lot of sense. NetScreen is an up-and-comer, and this gives them the ability to go toe-to-toe with Cisco."

Juniper officials last week cited the two companies shared focus on moving and inspecting packets in the interior of networks as the key driver behind the acquisition.

"The packet handling in the middle is exactly the leverage that we have in this combination," said Scott Kriens, chairman and CEO of Juniper, also in Sunnyvale. "This is an underserved market. Its time to lead, and theres no better way to lead than to match strength with strength."

Jumping Juniper

With its $4 billion purchase of NetScreen, Juniper gains:

  • Entrance into the security appliance market
  • Position to compete with networking/security players such as Cisco
  • 900 employees

Junipers acquisition of NetScreen marks its biggest foray yet into the enterprise network, said Frank Dzubeck, president of Communication Network Architects Inc., a Washington-based consulting company. "Juniper has no presence in the enterprise; NetScreen has channels into the enterprise. Juniper now doesnt have to build an enterprise channel," Dzubeck said.

Although Juniper has done a good job of carving out a healthy business in selling into carriers and ISPs, that market does not promise to fuel additional growth.

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"They need to get into new markets, and the enterprise is completely virgin for them," said Dzubeck.

Despite the high stock price that Juniper paid for NetScreen, Dzubeck said he doesnt believe Juniper paid too much. "NetScreen had $400 million in the bank, plus they have a run rate of $200 million plus, and they were doing 70 percent profits. This is a cash generator like youve never seen," he said.

Others believe that selling routers into Ciscos enterprise stronghold will be hard to accomplish. "They havent focused on the enterprise; their service and support infrastructure is not geared to the enterprise. It will be hard for Juniper to leverage [NetScreens] success and sell into the enterprise," said Lawrence Orans, an analyst at Gartner Inc., in Stamford, Conn.

One possible motivator for looking at an alternative to Cisco routers would be price, Orans said.