EMC in bizarre Juniper gobble attempt - Wall Street whispers

Tucci hoping to go down in history as 'Crazy Joe'?

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Reports say that data networking supplier Juniper Networks is putting itself up for sale and EMC could be a buyer.

Benzinga, a financial website, reported a rumour this week that Juniper was shopping itself around, with banker JP Morgan hired to deal with bids from potential buyers, such as EMC. A bid in the high twenties was mentioned, meaning $25-29 a share. Stock is trading at just under $18 right now, giving Juniper a market worth of $9.44bn. A high twenties bid would mean a price approaching $14bn, a massive premium.

EMC is capitalised at around $53bn so, in principle, it could afford it, especially if VMware's worth was taken into account as well.

But if the rumour is true, why would the networking firm shop itself and, secondly, why would EMC be interested?

Overall Juniper is behind Cisco in the networking market. Its recent trading results have been dire, with a 50 per cent earnings fall in its second quarter and now a 500 layoffs exercise underway. It's also putting some products in limbo and using Steelheads from Riverbed instead.

All this followed previous trading bad news. Basically, the rumour would have that Juniper is in the mire and doesn't know how to get out, or want to make the deep cuts on costs and product strategy rejigs to get expenses and revenues back into balance. Looking for a sugar daddy would then be its get-out-of-jail strategy.

However, this is not a point of view held by analysts who follow the company as a Barron's blog indicates.

The blog quotes Citigroup's Kevin Dennean: "We don’t see [Juniper] as a company in distress or facing the existential challenges/risks that would typically motivate a sale.”

Let's turn to EMC. El Reg thinks the background to EMC's role in this rumour is twofold. The first point is networking's convergence on Ethernet, with storage networking having adopted iSCSI enthusiastically and FCoE potentially ending Fibre Channel network's monopoly of high-end SAN connectivity.

The second background point is that converged stack systems of storage, networks, servers, hypervisors and even applications are becoming more popular. EMC and Cisco started the mainstream ball rolling with Vblocks after Oracle showed what could be done with its Exadata and Exalogic systems. You make it easier for customers to buy these thing by racking and stacking the bits together, selling it with one SKU and providing a single point if support.

HP and IBM and Dell are putting their own converged systems together, such as IBM's Pure line. NetApp jumped into the partnership bed with Cisco to produce FlexPods. EMC added low-end VSPEX architectures to its offer, and HDS joined the party with its UCP offering.

Vertical integration, anyone?

Although the partnership vendors producing converged systems don't admit it, it is obvious, according to the thinking of the rumour mongers that is, that a vendor owning more of the stack pieces can integrate them better than one owning less of them. How are vendors placed?

  • EMC has storage and VMware. There are no servers and no networking in this mix.
  • Cisco has servers and networking, but no storage.
  • Dell has servers and storage and networking.
  • HP has servers and storage and networking.
  • IBM has servers, storage and some networking.

If EMC is to withstand the competitive pressure of Dell, HP and IBM introducing better integrated stacks than Vblocks and VSPEX, and with Microsoft's Hyper-V helping to reduce VMware's incumbency advantage, then it might be looking to get more integrated.

It has a server-using and storage reselling deal with Lenovo that could be parlayed into a server stack component, and, as the rumours go, Juniper would be the missing piece, the network component.

Only it doesn't seem likely at all. Juniper is more of a telco supplier than an enterprise data centre supplier, so the fit with what El Reg supposes EMC needs isn't there.

Who else is there in enterprise data centre networking?

There is the low-latency switch supplying start-up Arista... Meanwhile, Brocade's CEO Michael Klayko has said he will quit in a few months and this has been interpreted in some quarters as increasing Brocade's ability to become an acquisition target. There is background about this here.

The Barron's Blog quotes Wells Fargo analyst Maynard Um, saying Brocade "supplies EMC’s competitors, the revenue from which could be at risk if acquired by EMC and, hence, in our view, making it less attractive."

From the rumour-mongers' point of view, the logic seems clear – but so are the wishes of stock gamblers wanting to profit from a bidding war, investment sharks wanting to make money from gets, puts, shorts, longs and all the other arcane jargon associated with money-grabbing stock exchange activities. A Juniper bidding war would be in their interests and rumours will be being generated on a factory scale soon enough.

Watch and wait. No one outside Joe Tucci's office knows if EMC actually wants to buy a networking company at all. VCE and VSPEX may be the sum total of EMC's convergence plans.

Remember, Seagate was supposed to be buying flash start-up OCZ. That one fizzled into dust, and so could this. If you must put money into Juniper, buy a gin and tonic; it's cheaper and will still give you a buzz. ®

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