JUNIPER SURPRISES INDUSTRY WITH NEW FOCUS ON CABLE PLAY

Router maker diversifies portfolio with Pacific Broadband buy

Stranger things have happened, but router equipment vendor Juniper Networks'' move into the cable space with its purchase of Pacific Broadband Communications surely would have been tough to predict.

An all-stock transaction worth $200 million turned Juniper from early investor to outright owner of PBC, a developer of cable modem termination systems (CMTS) that control high-speed data traffic in two-way cable systems.

While the deal reflects Juniper''s desire to enter a potentially burgeoning industry, it also expands the company''s portfolio beyond the troubled core router market.

An early investor in PBC, Juniper will use the $200 million deal to become the latest buyer and developer of CMTS. “[The PBC acquisition] is another step in our continued strategy of reaching out from the core to build the new public network,” said Scott Kriens, chairman, president and CEO of Juniper.

PBC equipment is designed to enable advanced services such as voice over IP, high-speed Internet access, business services and DVD-quality streaming video, according to Kriens. The acquisition also maintains PBC''s distribution agreement with Scientific-Atlanta, which should shield Juniper from some of the sales logistics.

Considering the overabundance of capacity in the core and the relatively low traction Juniper has seen for its edge products, shifting to the promising cable market may be a wise move. And both companies have IP-based equipment that theoretically should make a good marriage.

Cable operators are committed to IP for the deployment of applications and services, according to Ron Westfall, senior analyst for Current Analysis. Combined with cable operators'' desire to serve business customers, this commitment creates a strong market opportunity for Juniper.

But PBC''s equipment isn''t ready for deployment yet. Although it is in trials, some believe the CMTS product still has hurdles to clear. “Pacific Broadband hadn''t made any inroads to date and have a long road ahead of them,” said Mitch Auster, vice president of product management and marketing for ADC, which also has a CMTS product. While PBC has cable modem termination functions, Auster said it will not have a deployable system until it adds IP routing and redundancy capabilities.

Although PBC has yet to firm up its IP routing and redundancy capabilities, Juniper''s expertise in the area should come in handy. “We are looking at what the right architecture and the right solution is to tie [the Juniper and PBC] equipment together,” said Carl Showalter, vice president of marketing for Juniper.

But will Juniper integrate the PBC equipment into its routers or integrate the Junos software into the PBC equipment? Either way, Juniper''s ability to integrate third-party equipment will be tested, according to Westfall.

With this in mind, some question whether Juniper made the right vertical move. “They might have had an easier time buying into an area that was closer to their major areas of strength,” said one industry source. “Metro, Ethernet or even other more closely related IP-based access gear — all those areas would seem to be an easier entrée into the acquisition game.”

With additional reporting by Jim Barthold in New Jersey.