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Juniper prepares for a battle at the "low end"

Robert Lemos and Marguerite Reardon CNET News.com

Published: 10 Feb 2004 11:20 GMT

Telecommunications hardware maker Juniper Networks is going where it hasn't gone before -- into security and the low-end corporate market.

The company's announcement on Monday that it will exchange stock worth about $3.4bn for security hardware maker NetScreen Technologies gives Juniper clout in network protection technologies, an area that's been a relative bright spot recently amid anaemic network gear sales. The move has its risks, however, bringing the company into markets it has previously avoided, where it faces tough competition from chief rival Cisco Systems.

The NetScreen deal signals a major shift for high-end networking equipment maker Juniper, which has concentrated on products geared for large telecommunications and Internet backbone providers rather than networking hardware needed to run businesses. Previously, Juniper executives had claimed that they would never court corporate buyers, considered the "low end" of the networking market.

"This is definitely an attempt by Juniper to get away from being a one-trick pony -- they are big in the routing domain, but everyone is looking at security," said Muayyad Al-Chalabi, managing director for telecom industry watcher RHK.

The deal comes amid signs of a turnaround for the network sector, with both Juniper and Cisco posting profitable quarters. Juniper's profits exceeded analysts' revenue targets for the last quarter of 2003, the company said in January. Cisco's earnings inched past Wall Street estimates for the last quarter of 2003, even though the company's chief executive officer said customers may still be cautious about spending.

Momentum in security -- as well as in storage and wireless -- were among the reasons cited for the rebound.

Cisco dominates both the high and low ends of the network gear market. The company garnered about 65 percent of the market for core and edge routing equipment used by Internet service providers in 2003, according to Infonetics Research. Juniper nabbed about 19 percent of the $3.1bn market for the same period.

The NetScreen purchase puts Juniper squarely in the running for corporate business. NetScreen, which builds virtual private network (VPN) and firewall products, generates roughly 75 percent of its business from corporate sales.

"Juniper has done a great job competing with Cisco for the telecom router business," said Jeff Wilson, principal analyst for network security at Infonetics Research. "Yet a company that can compete with Cisco in the enterprise needs security in its products. This is a great start towards building that company."

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