Wall Street doesn't doubt that Juniper Networks is in play, but does doubt EMC's interest in the company.
Several investment firms issued bulletins following Network World's story that Juniper may be downsizing for a potential sale, that it has hired an investment banking firm to evaluate bids for the company, and that EMC may be one of the companies making an offer. The story cited Benzinga.com, a recent report from investment firm ISI Group, and internal contacts as its sources.
FABRIC WARS: Cisco vs. Brocade vs. Juniper
Many bulletins stated that Juniper may indeed be prepared to entertain offers due to recent product challenges, but most also doubted that EMC would consider acquiring the company.
"Given recent execution challenges at Juniper, we don't doubt that it may be contemplating a sale," writes Amitabh Passi of UBS. "However, we remain skeptical of an EMC-Juniper tie-up especially given Juniper's struggles in enterprise switching (including data center fabrics) and security, and the recent VMWare/Nicira tie-up."
The rationale for EMC's purported interest in Juniper would be to become a single source of integrated, fabric-woven storage, servers, networking and virtualization to IT shops. Juniper would replace Cisco as EMC's network infrastructure provider given an apparent rift in the EMC/VMware/Cisco joint venture.
But UBS sees Brocade a better fit for EMC, due to its lower valuation and enterprise synergies: Brocade is a SAN leader, and boasts more than three times the number of data center switching customers as Juniper, which derives 65% of its revenue from service providers. At the same time, UBS doesn't see EMC becoming infrastructure-dependent anytime soon.
"While we are seeing a move towards integrated offerings with vendors owning compute, storage, and networking, and would not be surprised to see EMC move in this direction at some point, we believe EMC is better off remaining hardware agnostic at this juncture," Passi states.
EMC also "feels like a stretch" to Oppenheimer & Co. Juniper's carrier business "could be out of EMC's comfort zone," writes Oppenheimer analyst Ittai Kidron.
Nonetheless, reports that Juniper's hired a banker "doesn't surprise us given that Juniper has lost focus in its core routing business and has struggled to grow its enterprise business," Kidron states.
A more suitable suitor for Juniper might be Ericsson, he states, given the carrier pedigree, or perhaps even a private equity firm.
Cantor Fitzgerald also doesn't dispute that Juniper may be exploring a potential suitor; but it "strongly disagrees" that EMC is one.
Like Oppenheimer, Cantor analyst Paul Mansky cites a disconnect in EMC's and Juniper's target customers; "cheaper" and better-aligned alternatives in Brocade and Arista Networks; a two-year-old OEM arrangement between EMC and Juniper that "hasn't born fruit" and seen "immaterial levels of traction"; and product execution issues at Juniper.
"To the extent EMC is looking at entering the switching market, it would be centered upon next-generation architectures - flat (single tier) networks, NOT competing head-head in a well-established legacy 3-tier network dominated by Cisco," Mansky states. "Juniper's Q-Fabric offering, its next-generation 'flat network' architecture has ~200 customers after almost two years in the market - and was just the focus of the down-sizing action taken at Juniper; Brocade on the other hand has over 700 customers in the same amount of time."
Citigroup doesn't believe Juniper is shopping itself around at all, according to this Barron's post:
"Simply put, we don't think the set-up is ripe for a company-driven sale: JNPR has major product cycles just kicking in (T4000 core router upgrade, PTX converged transport solution, QFabric data center solution), still-healthy margins (down significantly from 2010 levels, but a still-healthy 15% operating margin last quarter), solid cash flows ($212mln CFO, $124mln FCF last quarter), and healthy balance sheet ($3.4bln cash & ST investment, $2.4bln net cash). We don't see JNPR as a company in distress or facing the existential challenges/risks that would typically motivate a sale."
Meanwhile, Reuters is reporting that an unnamed source with Juniper "familiar with the matter" denied the company hired a banker to evaluate bids, or received an offer to be acquired.
Jim Duffy has been covering technology for over 25 years, 21 at Network World. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy.
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