On January 9, Hewlett Packard Enterprise (HPE) announced its acquisition of Juniper Networks for US$14 million. Integration poses an immense challenge, but if HPE sticks to the Aruba playbook, there is a high chance of success.
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Purchasing Juniper Networks to Provide HPE Leading-Edge WLAN Innovation and Expanded Addressable Market
It’s less than 2 weeks into 2024, but the Wireless Local Area Network (WLAN) ecosystem has already been confronted with what is set to be the industry’s the most significant, and disruptive, news story of the whole year—Hewlett Packard Enterprise’s (HPE) agreement to acquire Juniper Networks for US$14 billion. The deal will see two industry heavyweights converge, with their combined 22.7% market share for enterprise WLAN Access Point (AP) shipments (HPE Aruba Networking at 18.5% and Juniper Networks at 4.2% in 3Q 2023) inching closer to longtime market leader Cisco’s 27.9%. Both are also significant WLAN innovation leaders, with HPE’s networking unit, HPE Aruba Networking, and Juniper Networks ranking third and fifth, respectively in ABI Research’s recent WLAN for Campus Area Networks competitive assessment. The addition of Juniper’s industry-leading WLAN innovation and best-in-class Artificial Intelligence (AI)-native networking to HPE Aruba Networking’s diverse portfolio, advanced Network-as-a-Service (NaaS) offering, and robust global channel network will create a formidable new force with the potential to cause many sleepless nights among the Chief Executive Officers (CEOs) of competing WLAN vendors. But market success is not a foregone conclusion, as successfully integrating Juniper poses an immense challenge, and if HPE fails in execution, the competitors will swoop in to exploit its struggles. What then must HPE do to achieve a smooth integration for Juniper?
What Lessons Must HPE Draw from Previous Acquisitions?
Those familiar with HPE’s legacy will know that it is no stranger to buying innovative companies to augment its portfolio. It was less than 12 months ago that HPE purchased Italian private cellular technology provider Athonet, with the goal of enhancing its converged WLAN/5G solutions. That said, at US$14 billion, the purchase of Juniper Networks is set to be, by far, the largest. To understand what HPE intends for Juniper, and for foresight on what results we can expect, it is valuable to reflect on the outcomes of HPE’s acquisitions of other WLAN vendors over the past 15 years:
- Colubris Networks: HPE’s acquisition of Colubris Networks in 2008 represented the company’s first foray into WLAN networking. While HPE gained competitive WLAN technology, it lost most of the core talent that had originally built up Colubris during the company’s integration. Colubris founder and then Chief Technology Officer (CTO) Pierre Trudeau promptly departed the company, whereas CEO Rob Scott continued to briefly serve as the Vice President of Worldwide Sales and Marketing at HP ProCurve Networking, before moving on to Bradford Networks.
- 3Com/H3C: Hewlett-Packard’s 2010 purchase of 3Com for US$2.7 billion was driven by the desire to obtain to the company’s extensive networking patent portfolio and to access the booming Chinese market, the source of over half of 3Com’s sales via Chinese subsidiary H3C. Yet HPE’s attempted restructuring of H3C led to strained industrial relations and high staff turnover, resulting in a dramatic drop in H3C’s sales in China. HPE eventually sold a 51% stake in H3C to Tsiunghua Unigroup in 2015, followed by the remaining 49% in 2023.
- Aruba Networks: In 2015, HPE acquired industry-leading enterprise WLAN vendor Aruba for ~US$3 billion. Aruba’s WLAN portfolio was a great complement to HPE’s existing technology stack and go-to-market prowess, and Aruba was also an exceptionally well-run company, with revenue undergoing a Compound Annual Growth Rate (CAGR) of 30% in the 5 years preceding HPE’s purchase. Perhaps due to what it viewed as shrewd management, HPE made few internal changes to Aruba after acquisition. Aruba CEO at the time of the purchase, Dominic Orr, continued for 2 years after the purchase by HPE, after which Aruba founder and previous CTO, Keerti Melkote, assumed the role for 4 years.
These three episodes reveal an important lesson for HPE. Whereas both the Colubris and 3Com/H3C deals were primarily motivated by the desire to obtain competitive technologies and new market access, the purchase of Aruba was also about learning best practices from one of the top performing WLAN vendors in the industry. Thus, in contrast to Colubris (where the core staff departed) and 3Com/H3C (where company restructuring caused insurmountable frictions), Aruba was brought onboard as a trusted partner, and essentially granted the stewardship of HPE’s broader wireless business. Reflecting this, in 2016, a year after continuing his tenure as Aruba CEO under HPE’s ownership, Dominic Orr commented that the transaction felt more like a reverse acquisition, with Aruba acquiring HPE, not HPE acquiring Aruba. However, Aruba was able to retain and grow customers under HPE after the integration, whereas with the Colubris and 3Com/H3C integrations, HPE struggled to successfully convert customers.
Given the history above, the logical next question is whether HPE will treat Juniper like a Colubris or a 3Com, or like an Aruba. To answer that question, we must look at the motivating factors behind HPE’s latest purchase of Juniper. One of the major attractions is clearly Juniper’s demonstrated AI-driven networking leadership, an area of intense focus for the WLAN industry, and one which HPE, and the wider ecosystem, believes will be one of the industry’s key drivers of growth going forward. More broadly, the incorporation of Juniper’s industry-leading innovation can complement HPE’s existing technology stack, enabling the company to create new solutions and expand its addressable market. Furthermore, Juniper’s networking elements will help HPE to further diversify beyond compute and enlarge its networking capabilities. The company projects that incorporating Juniper will increase the revenue of HPE’s Networking business segment from 18% of HPE’s total to 31% (based off the 2023 fiscal year 2023), contributing more than 56% of HPE’s total operating income. Expanding networking capabilities in line with its power in compute will broaden HPE’s technology stack, generating greater differentiation between itself and the competition.
Yet, it is not technical capabilities alone that have underpinned decision-making. Another key incentive is likely Juniper’s stellar recent performance. After an exceptionally strong 2022, Juniper Networks reported 28.6% growth in enterprise revenue Year-over-Year (YoY) in 1Q 2023, followed by 38.0% in 2Q, and 37.4%. No doubt, HPE wants to capture some of this growth. Moreover, in a strategy similar to the purchase of Aruba almost a decade ago, the plan is for current Juniper CEO Rami Rahim to continue as the head of the combined HPE networking business upon completion of the transaction. Considering the factors outlined, HPE clearly sees Juniper not merely as a source of advanced technologies, but also as a trusted partner that can improve its own execution and accelerate the company’s strategic evolution. It appears that HPE has learned from the lessons of past WLAN vendor acquisitions, and is looking to replicate its Aruba success with Juniper.
The Competition Has Plenty of Counter Strategies at Its Disposal
The road to the eventual integration of Aruba and Juniper products will be long and winding, so the impact on the industry at the outset will be, in some ways, anticlimactic. Even once the transaction is finally settled, which is not expected until late 2024/early 2025 assuming smooth regulatory approval, the two portfolios will still be separate, with divergent management systems (Aruba Central and Juniper Mist) and incompatible hardware. This exposes HPE, as the lack of interoperability will raise confusion and complexity for customers. Without direct compatibility, HPE will have to, at first, rely on its Managed Service Provider (MSP) partners to manage Aruba and Juniper networks side-by-side in enterprise and campus environments—added complexity that will again damage HPE’s value proposition.
Another burning question that HPE has yet to answer is what are its plans toward product/feature overlap? Does HPE aim to phase out the Juniper Mist Network Management Platform, integrate it with Aruba Central, or will it continue to exist alongside Aruba Central (like Aruba AirWave today, itself a legacy of Aruba’s 2008 purchase of AirWave Wireless)? What will happen to the two companies’ location-based services offerings? Many might also wonder if we will see a situation similar to Cisco’s purchase of Meraki in 2012, where the Catalyst and Meraki lines continued to have different feature sets for the subsequent decade. With this merging, will proprietary Juniper technologies such as the AI-driven Virtual Network Assistant Marvis or its unique patented virtual Bluetooth® Low Energy (LE) antenna arrays be introduced into Aruba products, or will they remain exclusive to the Juniper portfolio? Lack of visibility into long-term plans again detracts from customer/prospect confidence in its solutions, benefiting competitors. To avoid potential customer churn due to a lack of clarity, the new HPE networking entity needs to address these concerns as soon as possible.
Finally, the extended build-up to the eventual integration of Juniper with HPE provides its competitors with ample time to formulate their own response strategies. WLAN ecosystem vendors competing with HPE should consider some of the following options:
- Leverage Acquisitions to Stimulate Strategic Evolution: Merely absorbing competing or complementary companies to gain new technologies or expand addressable markets is not enough here. WLAN vendors should learn lessons from the HPE experience, and focus resources on acquiring companies whose sound management and well executed go-to-market strategies can also be an asset to the organization and facilitate strategic evolution.
- Take Advantage of HPE’s Integration Challenges: Integrating a company the size of Juniper won’t be frictionless for HPE, and if the process isn’t executed flawlessly, competitors have a chance to exploit the company’s failure. Vendors can, for example, work to foster relationships with MSPs that are struggling, as the new HPE networking goes through a transition phase, or develop sales initiatives to incentivize vendors to abandon HPE for a more stable alternative.
- Highlight Benefits of Organic Growth: Those that have expanded their capabilities through organic growth should emphasize that they are better placed to offer a unified, consistent, and simplified network management experience, compared to those that have expanded through acquisitions, which often results in a complex system made up of numerous bolted together technologies and burdened by many legacy features.
- Identify and Exploit Gaps in Portfolio: The combined capabilities of Juniper and Aruba will have industry leadership in fields ranging from Artificial Intelligence Operations (AIOps) to location-based services, but this doesn’t mean that there aren’t still areas of weakness that competitors can take advantage of. Such fields include optimized network architectures for specific environments (such as campus), outdoor 60 Gigahertz (GHz) WLAN Point-to-Point (PtP)/Point-to-Multi-Point (PtmP) infrastructure, or simply the simplicity or cost-efficiency of solutions.