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Network equipment maker Juniper Networks is paying $3.5 billion for firewall supplier NetScreen Technologies. The move could trigger a wave of acquisitions as the big equipment makers seek to get their hands on top security vendors to ease the fears of their customers about network intrusion.

The benefits of Juniper's acquisition of NetScreen will be largely psychological, through allowing it to offer both networking equipment and security in-house. Big vendors like Cisco already do this while the rest of the industry relies on partnerships.

While NetScreen stock has jumped 35.9% to $35.89, Juniper shares have fallen 11.1% to $26.20 on fears that it is paying too hefty a price and that the expensive addition of a much smaller company such as NetScreen could dent its recent impressive growth record.

Now that carriers have started spending again, Juniper is on a roll. Last month it reported Q4 net income up 74.3% at $14.7 million on revenue 33.3% higher at $206.9 million. For the year, net income was $39.1 million, up from a loss of $119.6 million on revenue 28.2% higher at $701.4 million. NetScreen is showing even more impressive growth and in Q1 it almost doubled net income to $6.4 million on revenue 58.6% higher at $81 million.

The question now is how market leader Cisco will respond to the deal. While NetScreen competitors such as CyberGuard Corp and Check Point Software will hope to benefit by selling to carriers served by Juniper's competitors, the fact that security is uppermost in the minds of those buying networking equipment could prompt other acquisitions in the sector.

A big advantage of the Juniper/NetScreen deal is that the companies are near neighbors in Sunnyvale, California. The purchase of NetScreen boost Juniper's 1,600-strong payroll by a further 900 employees to Juniper's staff and while there is some opportunity for cost savings, Juniper says this is not a motivation for the deal.

There are also cross-selling opportunities as Juniper's main customer base is among the carriers, while NetScreen does about three-quarters of its business with large companies. NetScreen CEO Robert Thomas said the combined company would be able to reach customers that neither had in the past.

Source: ComputerWire/Datamonitor

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