HPE’s proposed $14 billion acquisition of Juniper Networks has caused some jitters among Juniper’s customer base of enterprises and service providers, and it has the potential to shake up the competitive dynamics across the networking industry.
Because there is significant product overlap between the Juniper and HPE Aruba portfolios, customers are justifiably concerned that certain product lines will be consolidated or eliminated. There’s also the potential for channel conflicts. And anytime there’s an acquisition of this magnitude, customers worry about what changes might impact the product roadmap, as well as sales and support teams.
Once the deal closes, which might not occur until 2025, the landscape in networking could change in a number of ways. Juniper competitors like Extreme and Arista will likely make a push to capture a bigger segment of the “Cisco alternative” market. And a combined HPE/Juniper might generate enough firepower to take a run at Cisco itself, which has been the unchallenged powerhouse in networking for decades.
Customer concerns
In sharp contrast to Broadcom’s acquisition of VMware, which triggered analyst recommendations that customers head for the exits, analysts report that both HPE and Juniper are proactively moving to allay customer concerns.
“I’ve talked to Juniper customers and there was initially a lot of concern,” says Zeus Kerravala, principal analyst at ZK Research. “Which products survive? What does the post-merger portfolio look like? The concern goes all the way down to the engineer level.”
But Kerravala adds, “I’ve been impressed with the speed at which both companies have talked to customers and explained there are no immediate plans to eliminate products.” Kerravala said he spoke directly with Phil Mottram, HPE executive vice-president and general manager the Aruba division, and was assured that if a decision were made to eliminate a redundant product, customers would get plenty of advance notice. “Typically, HPE gives five-year’s notice on product end-of-life. That seems to have quelled the fears of customers,” Kerravala says.
Sian Morgan, research director at Dell’Oro Group, says some customer concerns are to be expected. “Enterprises and OEM channel partners are concerned how the acquisition will affect product portfolios. Because of the heavy overlap in some areas (for instance wireless LAN), product rationalization is expected. This makes customers nervous, since no one knows which products will stay ‘as-is,’ which may change – or worse, which may disappear.”
“HPE executives has made assurances that all capabilities will continue to coexist, but it is natural for enterprises to be concerned about the longevity of the hardware and software they have integrated into their networks,” she added.
Where is the overlap?
Despite these assurances, a hard look at the numbers doesn’t bode well for many of Juniper’s product lines. Although Juniper has been around seemingly forever (since 1996) and has positioned itself as the go-to alternative for customers who don’t want to get locked into Cisco, HPE actually has a significantly higher market share.
Dell’Oro gives Cisco 43% of the overall enterprise networking market, while HPE clocks in at a distant 6%. Juniper’s overall market share is only 3%. A Gartner report paints a similar picture, putting Cisco’s enterprise networking revenue for 2022 at $24.1 billion, with HPE at $3.7 billion, and Juniper at $2.1 billion.
According to Dell’Oro Group, HPE is second in WLAN market share, while Juniper is seventh. HPE is third in campus switching, Juniper is fifth. HPE is sixth in enterprise routing, Juniper is twelfth. HPE’s SASE revenue is nearly four time larger than Juniper’s.
The only overlapping areas where Juniper has a higher market share than HPE are enterprise data center switches and network security, according to Dell’Oro.
To further add to the complexity, HPE has some products Juniper doesn’t, such as private 5G. Conversely, Juniper has service provider routers and next-generation firewalls.
“There is a significant overlap between the HPE Aruba networking and Juniper networking portfolios,” says Will Townsend, principal analyst at Moor Insights and Strategy. “Serious roadmap rationalization will need to occur, and without a doubt, some solutions will be sunsetted.”
Forrest analyst Andre Kindness points out that the combined entity will have multiple wireless access point product lines, as well as redundant routing and switching operating systems, and management platforms. “Though not immediately, products will need to go,” he predicts.
It’s all about AI
So, what is the crown jewel that HPE is acquiring? The answer is simple: AI technology that Juniper acquired when it bought Mist Systems in 2019 and integrated throughout its product portfolio.
Every public statement from HPE CEO Antonio Neri on the Juniper acquisition has revolved around AI. When the deal was announced in January, he said: “This transaction will strengthen HPE’s position at the nexus of accelerating macro-AI trends, expand our total addressable market, and drive further innovation for customers as we help bridge the AI-native and cloud-native worlds.”
In a recent quarterly earnings call with Wall Street analysts, Neri added: “Combining our complementary portfolios will supercharge HPE’s edge-to-cloud strategy, accelerating our entire portfolio with AI enabled innovation.”
Kindness says Juniper’s Marvis, its AI-powered virtual network assistant, is “by far the most advanced AI solution in the networking market,” with an estimated two-year lead over the competition.
And Townsend points out, “HPE needs further AI depth to remain competitive. Juniper could deliver on that front.”
The shifting landscape
It might not be a coincidence that HPE’s Neri went out and grabbed Juniper right after Cisco made its blockbuster acquisition of Splunk.
CEO Chuck Robbins says the Splunk deal enables Cisco to “revolutionize the way our customers leverage data to connect and protect every aspect of their organization as we help power and protect the AI revolution.”
Neri is countering with the argument that a consolidated Juniper/HPE stack, with key pieces like HPE’s Slingshot interconnect, can compete with Cisco across the board.
In fact, with the Juniper acquisition, HPE becomes a networking-first company, with networking constituting 31% of total revenue, making it HPE’s largest division. It will also account for 56% of operating profit, reflecting the higher margins associated with networking gear, says Morgan.
This is particularly relevant since HPE has been struggling to grow server and storage revenue. In its latest earnings report, total revenue was down 14% year-over-year, and the company issued guidance to Wall Street that 2024 revenue would range between flat and a 2% increase. Of course, Juniper isn’t exactly lighting the financial world on fire either – its latest earning report showed quarterly revenue declining 6% year-over-year.
Despite Neri’s bravado, going head-to-head with Cisco is a tall task, considering the head start Cisco has. Morgan points out that even if the combined HPE-Juniper entity managed to maintain all of its enterprise networking revenue – with zero cannibalization – it would still be less than a quarter of Cisco’s market share.
In terms of the broader networking industry, Kerravala says Arista and Extreme have the most to gain. He says Arista has positioned itself as the high-end alternative to Cisco and is working its way downmarket. Extreme has been successfully integrating its acquisitions of Avaya, Brocade and Aerohive and “the timing couldn’t be more perfect as their products are now in great shape to compete.”
Kindness also sees Arista benefitting, noting that Arista will differentiate itself with its “clear and succinct networking focus.”
Looking at it from another angle, the Juniper acquisition beefs up HPE’s networking story as it competes with Dell for customers who want a full-stack, one-stop shop that includes ASICs, networking, computing hardware, software, AI, and services. “HPE has a marked advantage now over its biggest computing and services competitor, Dell, which has struggled with regard to networking,” says Morgan.
Townsend adds that the acquisition also gives HPE a better opportunity to compete with Dell in the service provider and telecom infrastructure markets, particularly with mobile network operators.
As with any acquisition of this magnitude, it all comes down to execution. If history is any indication, Cisco certainly has a better track record than HPE, although HPE’s recent Aruba acquisition was highly successful.
“The ultimate success of the acquisition will be measured by how quickly and skillfully HPE integrates Juniper,” Kindness says. “There are many moving parts to this transaction—deep product roadmap rationalization, talent retention, and channel partner program reconstitution among them. However, if HPE is successful, it could significantly improve its share of the enterprise networking addressable market and strengthen its communication service provider business competitiveness at the same time.”
Morgan sums it up this way: “The real test is whether the companies can leverage Juniper’s AI capabilities and HPE’s well developed channels to win over new customers. If the combined company can do that, over time it could well become a threat to Cisco – even with Cisco’s formidable lead.”