JUNIPER PRESSURES CISCO WITH UNISPERE PURCHASE

Juniper's move to acquire Unisphere Networks from Siemens last week buys the router vendor into the edge of the network with the goal of taking a deeper bite out of market share currently dominated by Cisco Systems.

And Juniper appears to have landed a bargain — $375 million in cash and 36.5 million shares of stock, for a total deal value of $740 million. According to some sources, Unisphere is worth more than $1 billion. Siemens will end up with 10% ownership of Juniper as a result of the deal.

“This is a natural extension of both companies,” said Scott Kriens, chairman and CEO of Juniper. “The companies are fundamentally different but highly complementary.”

The combination even got a rare blessing from a carrier customer. “We are pleased because it will provide a more complete end-to-end solution,” said Dave Garbin, vice president of network architecture at Cable & Wireless, which uses Juniper routers in its core and Unisphere routers at its edge.

There's little doubt Juniper and Unisphere's marriage will add up to a higher combined market share. It also may bump start-up vendors such as Laurel Networks and Procket Networks out of the picture.

“It will be hard [for start-ups] to take on Cisco and and Juniper,” said David Gross, senior analyst at CIR. “You won't be able to just do another edge router.” The move will force vendors to concentrate on cost-conscious offerings, not added functionality, which is where most are focusing, he said.

“Bigger is definitely better these days,” said Hilary Mine, executive vice president at Probe Research.

Still, the roll-up will have issues. Despite his endorsement, Garbin had questions regarding the software integration, noting that demands on the core are different from the edge.

Juniper's Kriens said the companies have no immediate plans to combine software and likely will continue with two separate operating systems. Ironically, Juniper has long touted that its JUNOS software governs all its equipment, unlike Cisco routers, which interface with many other systems.

That might be something the companies reconsider over the next several months, according to Mine. “That can get expensive to have two separate solutions,” she said.

In spite of outward appearances, though, the companies shouldn't have much product overlap issues to resolve. Unisphere's flagship, the ERX, targets the same space as Juniper's M5 and M10 routers, though both have distinct functionality differences. “The M5s and M10s aren't the workhorses, and they are targeted at different [applications],” said Mine.

Esmeralda Swartz, vice president of marketing at competitor Avici Systems, believes the redundancy runs deeper because Juniper's M40 already competes head-to-head with Unisphere's MRX platform.

However, Swartz believes Juniper didn't have much of a choice. “[They] had to do this to compete with Cisco,” Swartz said. “The M5 and M10 haven't been as successful as they would have liked, and Unisphere has done a good job gaining share relative to Cisco. They needed to buy market share at the edge where they weren't doing well.”