HPE-Juniper's AI story resonates, but customer concerns linger
Every public statement from HPE CEO Antonio Neri on the Juniper acquisition has revolved around AI. When the deal was announced in January, he said: “This transaction will strengthen HPE’s position at the nexus of accelerating macro-AI trends, expand our total addressable market, and drive further innovation for customers as we help bridge the AI-native and cloud-native worlds.”
In a recent quarterly earnings call with Wall Street analysts, Neri added: “Combining our complementary portfolios will supercharge HPE’s edge-to-cloud strategy, accelerating our entire portfolio with AI enabled innovation.”
Kindness says Juniper’s Marvis, its AI-powered virtual network assistant, is “by far the most advanced AI solution in the networking market,” with an estimated two-year lead over the competition.
And Townsend points out, “HPE needs further AI depth to remain competitive. Juniper could deliver on that front.”
The shifting landscape
It might not be a coincidence that HPE’s Neri went out and grabbed Juniper right after Cisco made its blockbuster acquisition of Splunk.
CEO Chuck Robbins says the Splunk deal enables Cisco to “revolutionize the way our customers leverage data to connect and protect every aspect of their organization as we help power and protect the AI revolution.”
Neri is countering with the argument that a consolidated Juniper/HPE stack, with key pieces like HPE’s Slingshot interconnect, can compete with Cisco across the board.
In fact, with the Juniper acquisition, HPE becomes a networking-first company, with networking constituting 31% of total revenue, making it HPE’s largest division. It will also account for 56% of operating profit, reflecting the higher margins associated with networking gear, says Morgan.
This is particularly relevant since HPE has been struggling to grow server and storage revenue. In its latest earnings report, total revenue was down 14% year-over-year, and the company issued guidance to Wall Street that 2024 revenue would range between flat and a 2% increase. Of course, Juniper isn’t exactly lighting the financial world on fire either – its latest earning report showed quarterly revenue declining 6% year-over-year.
Despite Neri’s bravado, going head-to-head with Cisco is a tall task, considering the head start Cisco has. Morgan points out that even if the combined HPE-Juniper entity managed to maintain all of its enterprise networking revenue – with zero cannibalization – it would still be less than a quarter of Cisco’s market share.
In terms of the broader networking industry, Kerravala says Arista and Extreme have the most to gain. He says Arista has positioned itself as the high-end alternative to Cisco and is working its way downmarket. Extreme has been successfully integrating its acquisitions of Avaya, Brocade and Aerohive and “the timing couldn’t be more perfect as their products are now in great shape to compete.”
Kindness also sees Arista benefitting, noting that Arista will differentiate itself with its “clear and succinct networking focus.”
Looking at it from another angle, the Juniper acquisition beefs up HPE’s networking story as it competes with Dell for customers who want a full-stack, one-stop shop that includes ASICs, networking, computing hardware, software, AI, and services. “HPE has a marked advantage now over its biggest computing and services competitor, Dell, which has struggled with regard to networking,” says Morgan.
Townsend adds that the acquisition also gives HPE a better opportunity to compete with Dell in the service provider and telecom infrastructure markets, particularly with mobile network operators.
As with any acquisition of this magnitude, it all comes down to execution. If history is any indication, Cisco certainly has a better track record than HPE, although HPE’s recent Aruba acquisition was highly successful.
“The ultimate success of the acquisition will be measured by how quickly and skillfully HPE integrates Juniper,” Kindness says. “There are many moving parts to this transaction—deep product roadmap rationalization, talent retention, and channel partner program reconstitution among them. However, if HPE is successful, it could significantly improve its share of the enterprise networking addressable market and strengthen its communication service provider business competitiveness at the same time.”
Morgan sums it up this way: “The real test is whether the companies can leverage Juniper’s AI capabilities and HPE’s well developed channels to win over new customers. If the combined company can do that, over time it could well become a threat to Cisco – even with Cisco’s formidable lead.”
