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Juniper should reevaluate switching, security products investor says

Jim Duffy | Jan. 15, 2014
Juniper should review strategic options after mis-executing strategy

Juniper's switching and security products are underperforming in the market, says an investor recommending the company review strategic options for those offerings.

Elliott Management, which owns 6.2% of Juniper, says the company has lacked execution and lost momentum after entering the switching and security markets through either organic development or acquisition. Elliott this week recommended a three-prong strategy to Juniper management to unlock shareholder value, including a product portfolio review to reduce its exposure or even exit the switching and security markets.

In a 13D filing and presentation submitted to Juniper management, Elliott asserts that Juniper's forays into enterprise switching and security have been "failures" and that the company has mismanaged its participation in those markets since entering them five and 10 years ago, respectively.

"A strategic review of the Security business and an evaluation of the spending and strategy around the Switching business are both appropriate and timely given the failures in these two areas," the Elliott presentation states.

In switching, Elliott notes that Juniper "overpromised and underdelivered" on development and sales of the QFabric data center line, after spending over $100 million in two years on it. Elliott notes limited uptake of the full QFabric system and architecture — node/interconnect/director — the perception of it as proprietary and its immaturity.

Elliott also notes that competitors like Cisco, Brocade, Arista and others have introduced competing fabric switches in the time the industry was awaiting QFabric.

"Juniper's overall switching share remains very low at ~3% in a competitive market dominated by Cisco and has failed to gain significant traction despite entrance into the market five years ago," the Elliott presentation states.

According to Dell'Oro Group, Juniper's share of the $5.6 billion Ethernet switching market in the third quarter of 2013, was 2.4%, down from the 2.7% share it had in the $5.4 billion second quarter market but still good for third place behind Cisco and HP. Juniper's share in 2012 was 2.4%, up from 2.2% in 2011 and 1.9% in 2010.

Juniper will be challenged to gain share as Extreme's acquisition of Enterasys now has it just about even with Juniper. Huawei and Dell are also in the 2% ballpark. HP's acquisition of 3Com in 2010 boosted its share to the 11% range.

In security, Elliott notes that Juniper has lost significant share since acquiring NetScreen in 2004 for $4 billion. The company has also "mis-executed" on transitioning the security portfolio off of the legacy NetScreen operating system and platforms.

Underscoring this was the abrupt resignation of Bob Muglia, executive vice president of Juniper's software solutions division, who was responsible for turning the security business around.


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