2/10/2004 -- If nothing else, Juniper Networks Inc.'s $4 billion acquisition of NetScreen Technologies Inc. yesterday is a strong indication that the networking market segment is poised for a recovery in 2004.

Perhaps more significantly, however, Juniper's move places it directly into competition with Cisco Systems Inc. in a market -- the enterprise -- in which it has not historically been a major player. After all, NetScreen, a manufacturer of hardware-based VPN and firewall products, derives between 70 and 75 percent of its revenue from sales into corporate accounts. For the record, NetScreen generated approximately $245 million in revenue last year.

Joe McGarvey, a senior analyst of carrier infrastructure with consultancy Current Analysis Inc., says that the vast majority of Juniper’s customers are in the carrier space -- a fact that the networking company has traditionally exploited as a competitive differentiator. “[Juniper has] made a point of drawing a line when it compares itself to Cisco, casting a negative light on Cisco for sort of selling its products to its customers’ customers [in the enterprise],” he explains. “They do the majority of their business in the carrier space, so the biggest challenge for Juniper is going to be sort of reorienting itself, just because it’s always been a router company, always been a service provider company."

Market research firm Forrester Research says that Juniper derived more than 95 percent of its 2003 revenue from sales of routing and switching products to service providers. The company generated $700 million in revenue last year.

Yesterday, during a conference call with analysts and reporters, Jupiter CEO Scott Kriens sought to nip such criticism in the bud, claiming that the distinction between the carrier and enterprise markets is “outdated.”

Nevertheless, McGarvey speculates, Juniper’s abrupt about-face leaves it vulnerable to attack from Cisco, which derives as much as 75 percent of its revenue from enterprise customers, and which is also a significant player in the high-end carrier space. “Cisco in a way can portray this as sort of Juniper getting the message and following suit,” he says.

At the same time, analysts say, Juniper’s acquisition of NetScreen’s firewall technologies gives it a competitive leg-up over Cisco, whose market-leading PIX firewall is said to trail competitive products from NetScreen and other vendors in terms of firewall features and functionality. This July, for example, NetScreen is expected to ship a combined firewall, intrusion detection system (IDS), and VPN device that incorporates IDS technology it acquired from security specialist OneSecure, notes Laure Koetzle, a senior analyst with Forrester, in a research note.

According to Koetzle, NetScreen gives Juniper a combined product and technology stack that amounts to a viable alternative to Cisco. "With unified management, the broadband routing gear Juniper picked up from Unisphere Networks, and the SSL VPN capabilities that NetScreen acquired from Neoteris [in October of 2003], users should consider Juniper/NetScreen a real alternative to Cisco for combined networking and security deals," she writes.

Finally, McGarvey believes that the $4 billion all-stock transaction is a sign that vendors are confident a new round of infrastructure spending is in the offing.

“It’s definitely a sign that things are coming up, and the thing is that even with this announcement [which largely concerns the enterprise], I see most of [the spending] happening in the service provider space,” he says. “It’s reached a point where [carriers] need to focus on the new build-outs. It’s been four or five years ago now that these guys started the great fiber glut, when they started building out these networks in anticipation of this demand. These things go in cycles, and even though they overbuilt their networks, the demand has finally caught up.” -Stephen Swoyer