Juniper Changes Course With Cable Deal

The networker makes its first move into cable with a $200 million deal to buy Pacific Broadband.
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OK cable.

Striving to stay ahead of the ever-evolving Internet, network gear pusher

Juniper

(JNPR) - Get Report

is buying a cable equipment maker on the cheap.

On Monday, Juniper agreed to buy closely held Pacific Broadband in a $200 million stock swap. That's about $100 million less than the deal was rumored to be valued at last week, according to a person familiar with the discussions, and the drop suggests that the industrywide spending freeze has slashed the asking prices even on plum properties.

The move into cable represents one of the most dramatic departures for Juniper in its five-year history, though observers say it's likely to be a smart move, considering the lightning speed with which technological changes on the Internet take place. Juniper rose 55 cents Monday, to $23.99.

Change of Pace

As the prime router challenger to computer networking king

Cisco

(CSCO) - Get Report

, Juniper has focused almost exclusively on larger-scale Internet infrastructure. Routers are network devices located at main junction points, used to sort Internet traffic and direct information packets to their destinations.

Pacific Broadband started in 1999 as a communications chipmaker and soon shifted into the development of complex devices known as cable termination systems. These boxes are used by cable companies to deliver phone, Net and TV services.

Most of Juniper's biggest customers are phone companies, though the San Jose shop does sell routers to two cable companies: China Cable and French cable operator Noos.

Juniper CEO Scott Kriens said the deal does not stray from his long-range strategy of selling gear for the construction of the Internet. "This is very consistent with the vision we have overall, which is building this new public network," Kriens said on a Monday evening conference call.

Observers say the deal underscores the great bargains that can be scooped up in the market as the telecom recession drives down the value of once-promising tech ventures. Juniper was an early-round investor in Pacific Broadband.

How to Grow

In the absence of strong sales growth in its core product area, Juniper appears to be willing to try other avenues to expand its business. And given the price it struck with Pacific Broadband, payoffs may be large indeed if this technology can better marry the Net to cable systems.

"Growth is going to come through market share consolidation," says a Boston-based buy-side analyst with no position in Juniper. "The market leaders are going to remain the same. Investors will highly value this advantage if Juniper proves they are making smart deals."

Pacific Broadband's systems compete with gear from

ADC Telecommunications

(ADTC)

, Cisco and

Riverstone

(RSTN)

, among others. Cable equipment supplier

Scientific-Atlanta

(SFA)

is the sole distributor of Pacific Broadband gear, and Juniper says it plans to honor that agreement.

Scientific-Atlanta is also an investor in Pacific Broadband, as are Raza Foundries, Cox Communication, Vulcan Ventures and others.

Juniper says the deal will be accretive to earnings in 2003.