Déjà vu. A major router vendor had just acquired a privately-held optical transport provider.
Let me see. This sounds like a "Cisco-acquires-Cerent" redux.
Juniper’s acquisition correlates with Cisco’s “IP + Optical Mega Launch” of January 2001, when the John Chambers’ cha-cha trotted out comedian Dennis Miller to talk about how IP and Optical would, together, rule the world. Yes, that was fifteen years ago this month.
In a tip-of-the-hat to Tom Fallon (now Infinera – optical) and Jayshree Ullal (now Arista – IP), both former Cisco executives involved with Cerent’s success inside Cisco, they highlighted the DNA transplant underway at Cisco back then.
However, Juniper needed no such transplant. This upstart startup succeeded in the service provider market, just as Cerent did, even before Cisco made a dent with its routing platforms in the telco markets.
There remained a difference though, with Cisco. Juniper never seriously invested in an optical platform, until now. Stuart Jeffrey, a Nomura equity analyst, as reported by Fierce Telecom’s Sean Buckley, said, in January 2014, “One of the key gaps that Juniper needs to fill to be a more formidable challenger to Alcatel-Lucent, Cisco, and Huawei is an optical play.”
It is surprising that Juniper failed to develop a strong optical portfolio considering the success Cisco had with its Cerent acquisition. In fact, prior to Cerent being acquired, Juniper embraced optical extensions for its routing platforms, a strategy that saw mixed results across the industry. Service providers generally did not like that approach: Just ask Cisco (or their former salesman Doug Juers) how well its RPR-based Dynamic Packet Transport (DPT) solutions fared back in the day, compared to the Cerent 454 optical platform which efficiently aggregated traffic for routers.
Juniper, historically, supported many good ideas and made connections among entrepreneurs in Silicon Valley. Entrepreneurs Raj Singh and Pradeep Sindhu, one of Juniper’s founders, worked with Vinod Khosla as Advancel splintered into Fiberlane to produce SONET chip sets, and then a full blown optical ADM.
Other industry leaders, like Carl Russo and Scott Kriens, talked about the optical and routing markets over periodic luncheon meetings in the late 1990s. They focused on the rise of IP and the importance of optical needed to scale capacity for data traffic and eventually video.
Still, Juniper did not invest in optical to capture even a portion of that adjacent multi-billion dollar annual market. It’s surprising that the company that funded SONET chip sets in 1996 and cracked the code on service provider engagement (which led to the rise of Cerent) did not jump into the optical market. Of note, Juniper also missed the subsequent rise of the Packet-Optical Transport market, another missed IP + Optical opportunity. Even shareholders started to take notice.
In January 2014, as Sean Buckley reported, Juniper faced a challenge from one of its activist shareholders, Elliot Management, whose representative argued that Juniper’s shares underperformed because of what it alleged was an “outsized cost structure, inefficient capital structure, poor merger and acquisition track record and execution issues caused by unsuccessful extensions into security and enterprise switching.”
Clearly, Juniper’s growth had stalled and this “other” Internet giant was not being viewed as such a big success anymore. Like Cisco, who tried this revenue growth argument with analysts, Juniper countered its critics by arguing that it had enjoyed “five consecutive quarters of year-over-year revenue growth.” But revenue increases are not enough for restless shareholders. Valuation is viewed as more important, something that Carl Russo believes in spades. Juniper shareholders wanted the stock price to rise in a market that is growing at a rate faster than Juniper’s share price.
Unlike Cisco, who still had John Chambers as CEO in 2014, Juniper was in the process of transitioning to a new CEO in January of that year. I wondered if that new leader at the helm would embrace the focused views of Cerent’s CEO, Carl Russo, who believed in developing a strategy to create shareholder value and who then subsequently executed on that strategy.
With the acquisition of BTI, Juniper’s leadership seems to have gotten the message.
IP + Optical is where it’s at and Juniper’s acquisition of BTI ushers in
IP + Optical: The Sequel.