Hewlett Packard Enterprise's $14 billion all-cash acquisition of Juniper Networks will shake-up the computer networking market, giving Cisco Systems and others a more formidable rival, analysts say. With tepid sales growth, HPE stock has been an underperformer amid big gains by technology giants over the past year.
HPE announced the deal late Tuesday. The company agreed to pay $40 a share for Juniper.
"We believe the move plugs a few holes for HPE, with more data center switching, routing and security," added to its product lineup, Barclays analyst Tim Long said in a report.
HPE expects the deal to be earnings and free cash flow accretive in the first year post-close. The deal is expected to close in late 2024 or early 2025.
HPE Stock: Revenue Boost Needed
Prior to the deal, HPE had forecast fiscal 2024 sales growth in a range of 2% to 4%. Its fiscal 2024 starts with the current January quarter.
Juniper's 2023 sales are expected to climb 6% to $5.606 billion, according to FactSet estimates.
"We think the deal is logical from the perspective that it scales up their networking revenues," Evercore ISI analyst Amit Daryanani said in a report.
On the stock market today, HPE stock rose around 2% to 16.46. JNPR stock rose 1.6% to 37.41.
On Tuesday, HPE dived 8.9%, tumbling below a 17.29 buy point. JNPR stock soared nearly 22% on Tuesday. HPE stock is down 5% over the past 52 weeks. In contrast, the Nasdaq composite gained 43% in 2023.
HPE sells computer servers, networking equipment and data storage systems. It recently has touted demand for data center networking gear tied to tech companies' investments in artificial intelligence software.
Will AI Demand Improve Sales Growth?
"While a JNPR deal would deviate from the strategy to shift to as-a-service and the AI server narrative, we see some merits in providing access to new channels, customers and a larger footprint in networking," Bank of America analyst Wamsi Mohan said in a report.
Additionally, HPE has touted plans to shift to cloud-based tech services.
"In our view, we don't think the Juniper deal is a sign that the AI story isn't panning out for HPE," added Daryanani.
HPE in May sold off its stake in H3C, a Chinese joint venture, for $3.5 billion. Although the H3C sale will help finance the Juniper purchase, HPE will still add significant debt in the all-cash deal.
"While the deal seems to be a positive for Juniper shareholders, we believe the transaction could weigh on HPE shares as investors might have preferred a large lower-risk buyback following H3C sale in our view despite pro-forma revenue and operating income mixing more towards networking," said UBS analyst David Vogt in a report.
HPE Stock: Mist, Aruba In Same Business
As part of the deal, HPE will get Juniper's wireless networking business, Mist Systems.
Juniper stock targeted the enterprise market with the 2019 acquisition of Mist for $405 million. Mist has competed with HPE's wireless networking provider Aruba, which might raise regulatory issues.
Mist's wireless local area network platform uses artificial intelligence tools for automation and management features.
Juniper also sells networking gear to telecom companies, which is not part of HPE's core business. Juniper garners about 40% of sales from telecom customers.
In addition to Cisco, Juniper's data center networking business competes with Arista Networks.
Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
