On Jan. 9, 2024, HPE and Juniper announced they had entered a definitive agreement through which HPE intends to acquire Juniper Networks for approximately $14 billion in cash. The planned acquisition is expected to close in late 2024 or early 2025 should the agreement receive regulatory and Juniper shareholder approval. By acquiring Juniper, HPE’s networking capabilities, especially around AI-enabled networking, will be immediately bolstered. Naturally, the acquisition would also support HPE’s edge-to-cloud vision. Additionally, TBR predicts Juniper’s SaaS assets will be integrated into HPE’s GreenLake platform, which would strengthen GreenLake’s value proposition and expand the audience of enterprise customers.
Acquiring Juniper Networks Will Bolster HPE’s Edge-to-cloud Networking Capabilities
Demand for networking solutions that securely connect, protect and analyze companies’ data will continue to rise as AI workloads proliferate across a variety of industries and organizations increasingly leverage hybrid cloud architecture. Recognizing these trends, Hewlett Packard Enterprise (HPE) has been increasing its focus on networking to meet the demands of existing infrastructure customers and further differentiate from its main infrastructure OEM competitors.
Meanwhile, Juniper Networks also identified opportunities presented by trends in AI and hybrid cloud, understanding that customers were seeking simplified networking solutions with an emphasis on flexibility in consumption and deployment. As such, the company prioritized the expansion of capabilities associated with empowering cloud-managed, AI-enabled networking operations.
HPE’s Road to Enterprise Networking Prominence Began with Aruba
With the development of mobile technologies enabling internet-based data transmission, enterprises began to realize the need for network modernization, supporting the ramping of cloud-driven digital transformation initiatives in the early 2010s. This gave rise to the wireless or mobile enterprise model, which is a near requirement in today’s business landscape.
However, at this time, HPE’s networking expertise was somewhat limited to wired switching. The company knew it would have to expand its portfolio of wireless mobility solutions to remain competitive, and in March 2015, HPE announced plans to acquire Aruba Networks, a leading provider of network access solutions for the mobile enterprise.
After closing the acquisition in May 2015, HPE immediately began to see a return on its investment, with the company’s networking segment revenue growing approximately 8% year-to-year in 2015, driven primarily by Aruba’s inorganic revenue contribution to the business, which centered on wireless local area network (WLAN) products.
In addition to accreditive top-line impacts, the Aruba acquisition drove increasing gross profitability at the corporate level. Over the next few years, HPE leaned further into the WLAN space, leveraging its acquired Aruba assets. In 2018 HPE reorganized its reporting structure, forming its Intelligent Edge segment, which consists of two subsegments, HPE Aruba Products and HPE Aruba Services, and unified the company’s WLAN, campus and branch switching, and edge compute networking solutions.
The formation of HPE’s Intelligent Edge segment promoted deeper portfolio synergies, supporting the development of new Aruba software and services offerings, including “as a Service” and consumption models for the Intelligent Edge portfolio of products, which benefited the company’s GreenLake “as a Service” business, boosting HPE’s annual recurring revenue (ARR) and the strength of the company’s Network as a Service (NaaS) capabilities.
The importance of HPE’s Intelligent Edge segment as it relates to the company’s corporate performance was further underscored in recent years as demand for traditional servers and storage stagnated and began to decline due largely to market cyclicality. In the trailing 12-month (TTM) period ending 3Q22, HPE’s compute and storage revenues fell 10.2% and 6.3% year-to-year, respectively, while Intelligent Edge segment revenue soared, growing 41.6% year-to-year.
To further contextualize the segment’s growth, what started out as 9.9% of HPE’s total revenues in 2018 quickly grew to represent 13.3% of the company’s revenue in 2022, and in the nine months ended 3Q22, Intelligent Edge contributed over 19% of the company’s corporate top line. On top of this, since 2020 Intelligent Edge has contributed a disproportionately high amount to total segment operating income relative to the segment’s revenue contribution. In 2020, 2021 and 2022, Intelligent Edge accounted for 13.4%, 15.9% and 18.1% of HPE’s total segment operating income, respectively, highlighting the opportunity to provide high-value products and services to customers.
Juniper’s Cloud-managed, AI-enabled Networking Solutions and Expertise Add Another Dimension to HPE’s Intelligent Edge Portfolio
As more and more organizations embarked on cloud-driven digital transformation journeys, it became clear that consumption and deployment flexibility were key priorities among most organizations. Recognizing this, Juniper acquired Mist Systems, a leader in AI-powered, cloud-managed wireless networks, in 2019. Mist’s AI-driven WLAN platform was a strong complement to Juniper’s wired LAN, SD-WAN and security solutions, laying the groundwork for Juniper’s Mist AI platform, which has been key to the company’s growth since the closing of the acquisition.
In 2020 Juniper continued its acquisition spree with the purchase of 128 Technology, a networking company known for its session-smart networking technology that enables customers to create user-experience-centric fabric for WAN connectivity that is not only simplified and secured but also efficient and agile, basing networking decisions on real-time user sessions as opposed to static network policies. By incorporating 128 Technology’s session-smart technology into Juniper’s AI-driven enterprise network portfolio, Juniper sought to accelerate the adoption and development of modern AI-driven networks aimed at optimizing the user experience from edge to cloud.
Through these acquisitions, Juniper became a leader in AI-driven enterprise networking, which supported the company’s expanding top line. In the TTM periods ending 3Q20, 3Q21 and 3Q22, Juniper’s AI-Driven Enterprise operating segment revenue, which includes Mist and Technology 128 offerings, has grown 20.4%, 22.7% and 45.9%, respectively, year-to-year. For context, Juniper’s corporate revenue expanded just 5.1%, 10.6% and 9.6%, respectively, year-to-year over the same TTM periods, highlighting Juniper’s focus on AI-Driven Enterprise as well as the market’s strong appetite for these offerings.
HPE to Solidify Its Presence as an Industry Leader in the Networking Space by Integrating Juniper’s Mist AI Platform into its Existing Portfolio
Juniper’s portfolio of solutions somewhat overlaps that of HPE; however, much of this overlap is complementary. For example, both companies have competency in WLAN, SD-WAN, and enterprise and campus switching, but Juniper’s AI-native networking technology and expertise will bolster the capabilities of HPE’s existing offerings.
Uniquely, Juniper’s Mist AI platform leverages AI, machine learning and other data science techniques to simplify operations across wireless access, wired access and SD-WAN domains in a way that optimizes the user experience from the edge to the cloud. Essentially, Mist AI brings greater insight and automation to network operators, which improves the end-user experience and is a compelling reason why HPE is moving to acquire the company. Additionally, Juniper’s portfolio lends HPE net-new competencies around WAN routing as well as network firewalls.
HPE has been vocal in expressing its commitment to grow its highly profitable Intelligent Edge segment revenue stream as the company recognizes the massive opportunity presented by the onset of the generative AI (GenAI) revolution. Should the acquisition close, HPE is expecting to double its networking business, integrating Juniper’s solutions and expertise, especially as it relates to the Mist AI platform, with its own rapidly expanding Intelligent Edge segment.
By integrating Juniper’s Mist AI platform with its existing technologies and offerings, HPE will further differentiate from its infrastructure OEM peers as an AI-driven networking provider, building a networking portfolio rivaling that of Cisco (Nasdaq: CSCO). However, HPE’s acquisition of Juniper would arguably propel HPE’s portfolio past that of Cisco and other major networking players in terms of technological advancement specifically through an AI-driven networking lens. Juniper’s deep relationships with telcos and service providers and the company’s large router install base will also expand HPE’s addressable market.
Similar to how HPE integrated Aruba’s management platform into GreenLake, should the Juniper acquisition close, TBR expects HPE will fold Juniper software and services into GreenLake, bolstering HPE’s GreenLake for Networking solution, formerly GreenLake for Aruba. This anticipated move would enhance HPE’s GreenLake value proposition compared to Dell APEX and Lenovo TruScale while fueling continued GreenLake ARR growth, supporting the company’s edge-to-cloud strategy and improving its profitability.
Additionally, TBR believes that if the acquisition closes, HPE will integrate Juniper’s product offerings into HPE’s “as a Service” portfolio, further augmenting the company’s NaaS offerings.