Network equipment maker Juniper Networks Inc. is acquiring NetScreen Technologies Inc. in an all-stock deal worth approximately US$4 billion, Juniper said Monday.

The acquisition will add NetScreen's network security products, including firewalls and VPN (virtual private network) technology, to Juniper's portfolio of high-end networking products. Both companies are based in Sunnyvale, California.

The addition of NetScreen's technology will help Juniper better serve its customers by addressing network security concerns, in addition to reliability and performance, said Juniper Chief Executive Officer (CEO) Scott Kriens in a statement announcing the acquisition.

The deal is expected to close in the second quarter of 2004 and must be approved by the shareholders of both companies.

In a conference call to discuss the agreement, Kriens called the deal a "game-changing day" in the networking world.

The deal presents new opportunities for the combined company to reach large customers who are the focus of both NetScreen and Juniper. Netscreen's traditional strength in large enterprises will mesh well with Juniper's historical focus on Internet service providers, ILECs (incumbent local exchange carriers) and the defense industry, Kriens said.

At the same time, he dismissed the focus on those traditional market distinctions. The growth of networked devices, from portable digital assistants to home entertainment systems is blurring the line between public and private networks, Kriens said. The future will be less about focusing on specific markets than about ensuring the quality and security of data sent from source to destination, he said.

After completion of the acquisition, NetScreen's 900 employees will join Juniper's staff of 1,600 in a new security products group under the leadership of NetScreen President and CEO Robert Thomas, who will report to Kriens, Kriens said.

The initial focus of that group will be on meeting the demands of NetScreen's existing customers. However, the two companies will look at ways to "cross pollinate" their technology and intellectual property, he said.

Together, Juniper and NetScreen will combine their technologies into suites of products that combine core IP (Internet Protocol) routing with security and policy management features, extending the reach of security products from the network perimeter to the "heart of the network," Kriens said.

Kriens contrasted that with the approach taken by leading competitors such as Cisco Systems Inc., which relies on plug-in components, or "blades," to add security features to networking hardware.

Executives from both companies expressed enthusiasm for the deal Monday. Speaking on the conference call, NetScreen's Thomas said executives at his company are "almost delirious" at the prospect of joining with Juniper.

Besides the combined resources of the two companies, NetScreen executives look forward to getting access to channels, such as Internet service providers, where Juniper is a strong player, he said.

In recent months, NetScreen has been taking steps to increase the breadth of its security offerings. The company bought SSL (Secure Sockets Layer) VPN maker Neoteris Inc. of Mountain View, California, in November for $265 million in stock and cash, adding that popular remote access technology to its portfolio.

Speaking Monday, Kriens called that acquisition a "spectacular move" and said that, as part of Juniper, NetScreen will continue expanding its security offerings and focusing on solving complex network security problems.

The merger is evidence of a shift in the market for networking equipment produced by the string of major Internet worm outbreaks in recent months, said Richard Stiennon, research director for network security at Gartner Inc.

"For the longest time, networks were about being wide open to everything -- using any ports and any protocols," Stiennon said. "Thanks to worms and hackers, however, the Internet is being locked down to allow a lot less access, which is more akin to what firewalls do than what routers do."

In that light, a merger between a leading routing vendor and a network security vendor makes sense, he said.

Juniper, in addition to other networking equipment makers like 3Com Corp. and Nortel Networks Corp., sees security as an increasingly important feature that can make the difference between making a sale and losing it to a competitor, he said.

In November, for example, 3Com announced a plan to sell security switches by Crossbeam Systems Inc. to customers under the 3Com brand name while it builds security into a new generation of 3Com switches and routers.

The Juniper-NetScreen deal may also send a message to industry leader Cisco, Stiennon said.

"This is going to be a wake-up call to Cisco. They're going to have to look at the fact that they don't have an industry leading firewall and (Juniper) now does," he said.

While Cisco's PIX firewall leads the firewall market in sales, it lacks the management features of NetScreen's product and has lagged the rest of the firewall market in innovation for the last five years, he said.

Customers should also look for NetScreen's security products to begin migrating inside the network perimeter to manage traffic within corporate local and wide area networks, which have proven more difficult to police in recent worm outbreaks, he said.

IDG News Service

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