Hewlett Packard Enterprise’s recent acquisition of Juniper Networks is poised to establish the second-largest networking company in the United States. This development presents both opportunities and challenges for Cisco Systems and Arista Networks.
With a staggering all-cash deal worth $14 billion, announced on Tuesday, Hewlett Packard Enterprise has made a substantial investment that accounts for more than half of its own market valuation of $23 billion. The company is banking on the rapid growth of artificial intelligence technology to drive increased spending on networking equipment, a trend that both Cisco and Arista are also capitalizing on.
While HPE’s shares experienced an 8% drop the previous day, they managed to bounce back slightly with a 0.3% increase on Wednesday. Juniper, on the other hand, saw a 1.7% surge, settling at $37.45, within striking distance of the all-cash transaction value of $40 per share.
This acquisition will significantly elevate networking as a focal point for HPE, elevating its revenue from networking to around 31% from the previous 18%. Furthermore, it will bolster their operating income to over 56%, according to insights provided by William Blair analyst Sebastien Naji.
However, Naji also points out that the integration of Juniper into HPE might lead to temporary disruptions in product lines and sales coverage, which could present an opportunity for competitors to gain some market share. In the long run, the entry of a large-scale networking competitor is likely to pose a minor challenge for both Cisco and Arista.
Naji has given Arista shares an Outperform rating and Cisco a Market Perform rating, opting not to provide a specific target price. This assessment is reflected in a 1.1% increase in early trading for Arista shares, while Cisco remained relatively stable.
A critical aspect of interest will be how HPE successfully incorporates Juniper’s Mist offering into its own Aruba networking business. The Mist solution, which leverages artificial intelligence technology to enhance wireless access, was acquired by Juniper in April 2019 for approximately $405 million. Stifel analyst Matthew Sheerin believes that the combined portfolio positions HPE as a comprehensive provider of software-defined and data-driven enterprise networking solutions.
Sheerin has consequently given HPE a Buy rating and set a target price of $20 for the company’s stock.