Juniper to buy Siemens

Carrier network gear vendor Juniper Networks Inc. has agreed to acquire Unisphere Networks Inc., a network equipment division of Siemens AG, in a deal that also will give Juniper access to Siemens’ worldwide sales channels, the companies announced Monday.

Juniper, in Sunnyvale, Calif., the biggest rival to giant Cisco Systems Inc. in the router business, will acquire Unisphere for US$375 million and 36.5 million shares, according to a statement from the companies. Based on Juniper’s closing stock price of $9.85 on Friday, the deal will be worth about $740 million, the statement said. The acquisition is subject to regulatory approvals and is expected to close in the third calendar quarter of this year.

Unisphere, based in Westford, Mass., makes routers, gateway devices and other equipment and software for networks based on IP (Internet Protocol).

As part of the agreement, Munich-based Siemens will sell Juniper’s routers and other carrier equipment through its sales and system integration operations around the world. Juniper’s equipment will help Siemens create next-generation networks that can carry voice and video as well as data over IP networks, the company said.

At the close of the transaction, if it is approved, Siemens will own slightly less than 10 per cent of Juniper, according to the statement.

The companies fit well because while Juniper has been expanding its range of products from the core out to the edge, Unisphere has been growing from the edge into the core, said Scott Kriens, Juniper chairman, president and chief executive officer, in a conference call following the announcement. Their hardware and software product lines are complementary, and although there may be opportunities to increase efficiency through a merger, the deal is not intended as a cost-cutting move.

Juniper plans to continue enhancing its own Junos software as well as Unisphere’s software, he said.

“Both of the sets of software here are proven and established in a significant number of major networks … in different roles,” Kriens said. “What we will do is bring them together in a way to view and manage (operations) across a common network infrastructure,” he added.

The companies also are complementary in geographical terms, company executives said. Whereas Juniper’s sales are approximately 60 per cent to 70 per cent in the U.S., Unisphere’s are about 70 per cent outside that region, they said.

Juniper’s partnership with L.M. Ericsson Telephone Co. for mobile network equipment is not affected by the new relationship, Kriens said.

Ericsson and Juniper’s jointly developed product, the AXB 250 06 GGSN (Gateway GPRS Support Node), will continue to be sold exclusively by their joint venture, Boston-based EJN Mobile IP Inc. That product is designed to link a wireless mobile infrastructure with an IP backbone to take advantage of IP-based services. Juniper is free to cooperate with Siemens in the mobile segment, Kriens said.

The deal could bolster Juniper’s offerings for the edge of service provider networks and give it a greater sales reach, while allowing Siemens to set up complete networks, said Kevin Mitchell, an analyst at Infonetics Research Inc., in Woburn, Mass.

Juniper began as a maker of routers for the core of carrier networks but recently has expanded into equipment for the edge, including routers, CMTS (cable-modem termination systems) and mobile IP services.

“The edge has been a fairly hot market, and for Juniper that was a bright spot in 2001, but there was some question whether their edge routers are optimized to deal with edge routing needs,” Mitchell said.

Unisphere’s lineup would bring in features such as sophisticated service management software and MPLS VPN (Multiprotocol Label Switching virtual private network) initiation, he said.

Together, Juniper and Unisphere had 18 per cent of the edge router market in the first quarter of 2002, second only to Cisco’s 59 per cent, Mitchell added.

Unisphere was formed in 1999 when Siemens combined three U.S. startups with one of its own divisions in a move to strengthen its portfolio for next-generation networks that carry a variety of kinds of services, including voice calls, over IP networks.

At the close of trading Monday on the Nasdaq, Juniper’s stock (JNPR) was down 3.14 per cent at $9.54.