Hewlett Packard Enterprise's plan to buy Juniper Networks for $14 billion would be its biggest acquisition since the tech giant launched nearly a decade ago after Hewlett-Packard split into two companies.
For CEO Antonio Neri, the move underscores a strategic goal: to regain a leading position in enterprise tech, a nearly $2 trillion market where HPE was once dominant before cloud computing, led by Amazon, Microsoft and Google, upended the industry.
Buying Juniper, a leading maker of networking gear, takes HPE a step closer to joining the cloud trifecta, Neri said.
"Our aspiration is to be the fourth cloud," he told Investor's Business Daily. "That, to me, is an enormous opportunity."
Hewlett-Packard In The Cloud Era
Before Hewlett-Packard split in 2015, the Silicon Valley giant had been one of the world's tech powerhouses like IBM, Dell, Oracle and Cisco in the 1990s and early 2000s. HP sold gear used to run corporate networks, including servers, business PCs and printers. This model entailed huge capital expenditures which also typically forced businesses to be locked into specific vendors.
Cloud computing changed that market dramatically.
Corporations, startups and mom and pop shops run their networks by doing all their commuting through the cloud, web-based platforms that allow them to scale back or abandon in-house data centers. Businesses reduce their information technology costs.
Amazon, Microsoft and Google emerged as the new masters of the enterprise market. On the other hand, the rise of cloud computing hurt traditional vendors like Hewlett Packard.
But cloud computing has continued to evolve. New trends created clearer openings for traditional enterprise tech players.
"We're still here," Neri said. "We're still growing and we're still making a lot of money."
HPE sees a big chunk of the growth coming from another trend: hybrid cloud.
Many businesses realized the need to maintain some data and processes in-house. Hybrid cloud lets businesses store and process data and use applications on a public cloud — like those run by Amazon Web Services, Microsoft and Google — while still keeping huge chunks of that work in their own data centers.
HPE, under Neri, helped push another trend with GreenLake. The service, which launched in 2017, made it possible for companies and government agencies to retool their in-house data centers and pay only for the equipment capacity they used.
HPE also has built up its supercomputing arsenal, with the acquisition of Silicon Graphics and Cray, assets that now underline its strength in AI.
The Rise Of Hybrid Cloud
To be sure, the cloud remains a growing trend in enterprise tech. But attitudes have changed, Neri said.
Customers "from a CEO down into their organizations" used to say, "You need to go to the cloud if you want to be relevant and you want to ride the innovation wave," he said.
But today, "When you talk to CIOs today, CTOs or whatever they have, they don't believe that," Neri added.
The public cloud still plays a critical role, but businesses also know the importance of having "potentially a cloud in your own data center for things that really matter to you because of compliance or data privacy issues," Neri said.
The Juniper deal expands HPE's arsenal as it goes after a bigger share of the hybrid cloud market, Neri argued. The acquisition also boosts the company's position in the market for IT gear, referred to as the plumbing used to connect computer systems in a network or with the internet.
Gobbling up Juniper could transform HPE into a stronger player in the market now dominated by Cisco.
"Together, we have a bigger chance to beat Cisco than independently," Neri said.
Taking On Cisco
It's still an uphill battle. Take the market for wireless local area networks. In Q3 of 2023, Cisco owned a 43% share of the $2.5 billion market, according to IDC. HPE had 12% while Juniper owned 4.5%. But networking is "a big market with a lot of profit," Neri said.
In fact, networking, which became a prominent part of HPE's portfolio after it bought Aruba Networks in 2015, has been a growing business for HPE. IDC President Crawford Del Prete called it "a real juggernaut for the company."
"They're increasing their exposure to the networking segment, such that over half the profit of that company and over 40% of the revenue will now be in the networking space," he told IBD.
Del Prete also said the Juniper deal "increases HPE exposure to the cloud, in a good way," by creating more high-margin market opportunities.
"I think he's gonna make a lot more money selling high margin bullets to all the cloud providers," he said.
Taking On The Cloud Giants
But joining the ranks of cloud giants will be tough, Del Prete added.
Referring to Neri's pronouncement, he said, "I think becoming the fourth cloud provider is an admirable goal. But he's going to see a lot of competition from other companies like Alibaba, to do that on a global scale. And that's going to take a lot of Capex [capital expenditures]."
In fact, Wall Street reactions to the Juniper deal were largely muted. HPE stock slipped nearly 9% when the company announced the acquisition, dipping below its 50-day average, according to IBD MarketSmith.
"The Juniper acquisition will sharply increase HPE's financial leverage but we view the acquisition as modestly positive from a strategic perspective," Moody's analyst Raj Joshi said in a client note,
Other analysts noted expectations of an HP share buyback especially after the company sold its stake in H3C, a Chinese joint venture, for $3.5 billion.
HPE investors "might have preferred a large lower-risk buyback following the H3C sale," UBS analyst David Vogt told clients a note.
Neri pushed back on that view, noting that under his term, HPE has done "almost $10.5 billion in capital return."
"That didn't do anything for us," he said. The key way for HPE to grow is "by changing the portfolio," of products, he argued.
"People look at the very short term," he said. "It is a relatively easy thing to do. But we also have other stakeholders, our customers and employees and others. Ultimately the best value creation is when you are more relevant with customers, not just financial engineering type of things."
A Rocky M&A History
A Hewlett-Packard veteran, Neri, who joined the company as a customer service engineer in 1995, has lived through the tech giant's bold, if sometimes contentious, attempts at value creation.
Hewlett-Packard became known for controversial, even disastrous, acquisitions. A $25 billion deal to buy Compaq unveiled in 2001 led to a bitter proxy war between the company, then led by Carly Fiorina, and opponents of the merger, led by the Hewlett and Packard families.
A 2011 deal to acquire Autonomy for roughly $11 billion led to a court battle over fraud allegations against entrepreneur Mike Lynch.
Neri was the head of Hewlett-Packard's enterprise business when he helped lead the company's $2.7 billion purchase of Aruba Networks.
Del Prete said the Aruba merger stands out in the history of tech.
"It's very fashionable to say that tech mergers don't work and everybody loves to talk about how there have been all these historical failures over the years," he said. "When I look at tech mergers, one of the most successful tech acquisitions I think was HP buying Aruba."
Lessons From Hewlett-Packard Split
HP, then led by CEO Meg Whitman, announced the deal shortly before the split.
"At the time the company was a $115 billion dollar company with several lines of business and one of the challenges was we couldn't maintain a competitive position in each of them," Neri said in a 2020 interview. "Meg decided it was better to be more focused than being an IT supermarket."
Asked about the most important lesson he has learned from the split and Hewlett-Packard's long history of mergers, Neri said, "Sometimes we overthink issues,"
"You make a decision, you commit and go," he said. "Don't procrastinate. You're going to have a lot of opinions from people on why that's a bad idea, versus how I execute that idea. So it's a psychological game in many ways."
