Analysts Question DOJ’s Market Analysis In Lawsuit To Block HPE’s $14B Acquisition Of Juniper Networks

'I think if you let HPE buy Juniper it creates a strong number two,’ says Zeus Kerravala, founder and principal analyst at ZK Research. ‘That is good for everybody, most importantly customers. I think the DOJ’s thesis that this slows down innovation is backwards.’

Top market research analysts are questioning the market analysis laid out in the U.S. Department of Justice’s 21-page complaint alleging Hewlett Packard Enterprise’s $14 billion acquisition of Juniper Networks would “reduce competition and weaken innovation.”

In its lawsuit, which focused heavily on the wireless LAN market, the DOJ claimed that the HPE acquisition of Juniper Networks would “eliminate fierce head-to-head competition between HPE and Juniper, raise prices, reduce innovation, and diminish choice for scores of American businesses and institutions, in violation of Section 7 of the Clayton Act.”

The DOJ said the proposed transaction between HPE and Juniper, if allowed to proceed, would further consolidate an already highly concentrated market — and leave U. S. enterprises facing two companies commanding over 70 percent of the market: the post-merger HPE-Juniper and market leader Cisco Systems Inc.

But Crawford Del Prete, president of IDC, the global market research intelligence firm headquartered in Needham, Mass, said a combined HPE and Juniper Networks accounted for only 20.4 percent of worldwide revenue in the wireless LAN market for the first nine months of 2024 compared with 41 percent for Cisco Systems and 7.9 percent for Chinese networking company Huawei.

Even if HPE and Juniper complete the deal, they remain number two in the overall market with more than eight other companies competing aggressively in the market worldwide, said Del Prete.

“HPE is acquiring a technology that is going to allow them, they believe, to be more competitive,” said Del Prete. “Isn’t that what Cisco did with Meraki [which Cisco acquired for $1.2 billion in 2012]?”

When the blockbuster HPE deal was first announced a year ago, IDC believed the big benefit would be HPE’s access to the “data center and service provider market which is super, super hot given an AI enabled world,” said Del Prete. “We viewed the deal as broadening HPE’s portfolio. In our view that is the large margin pool HPE wanted to get into by acquiring Juniper’s business.”

HPE does gain share in wireless LAN with Juniper Mist, said Del Prete, but IDC did not see that as the driving motivation for the deal.

Del Prete said he ultimately sees an HPE-Juniper combination benefiting customers. “If the deal is completed you would have HPE and Cisco competing pretty fiercely with very large R&D budgets investing in future technology,” he said.

Zeus Kerravala, founder and principal analyst at ZK Research, an Acton, Mass.-based market research firm which specializes in the networking market, said he believes the DOJ market analysis opposing the deal misses the mark.

“I think a strong number two [with HPE and Juniper combining] would create a strong competitor to Cisco,” he said. “That helps drive innovation. If you look at other markets where there isn’t a strong number two the incumbent often takes their share for granted and it slows down innovation.”

Kerravala said he sees the DOJ’s primary focus in the lawsuit on wireless networking also misses the mark given the full network portfolio a combined HPE-Juniper will bring to customers. “The percent that is wireless LAN (from the deal) is under five percent,” he said. “There is security, service provider, data center, servers, software. Wireless LAN is kind of a zero sum game because they all use the same chips. It is not like adding the Access Points from Juniper to HPE creates some kind of unfair advantage. The innovation is on the software side. That is another thing the DOJ missed.”

The bigger issue for the future of the networking business is the impact of artificial intelligence, said Kerravala. “AI is going to determine the future winners and losers not wireless LAN,” he said. “The DOJ’s sole focus on wireless LAN to me seems completely misguided.”

Kerravala estimated Cisco’s overall network market share had dropped from 70 percent 10 years ago to about 50 percent today. “Stronger competitors have created more options for customers,” he said.

Kerravala said he is glad HPE is fighting the DOJ and is hopeful the deal will be completed. “I think if you let HPE buy Juniper it creates a strong number two,” he said. “That is good for everybody, most importantly customers. I think the DOJ’s thesis that this slows down innovation is backwards.”

Will Townsend, vice president and principal analyst for networking and security practices for Moor Insights & Strategy, an Austin, Texas market research firm, said he sees the DOJ case as another example of the federal government “clearly not understanding the nuances” of technology.

“From my perspective there is value in both of these companies coming together with their engineering and research and development to provide customers more choice, especially when it comes to AI workloads and all the demands that will be required for networking infrastructure to do large language model processing,” he said.

A combined HPE-Juniper Networks would bring to bear a larger engineering and research and development team to fuel more innovation in the networking market, said Townsend. “From my perspective the portfolios and strengths of these companies are complimentary,” he said.

Townsend said given the unconditional approval of the deal from all over the world including the European Commission and the United Kingdom, the DOJ move to block the deal “does not seem rational.”

Ultimately, partners will be big winners from a combined HPE-Juniper, said Townsend.

“The combination would bring more resources to the channel and more training, probably more channel dollars,” he said. “Bringing HPE and Juniper together is just going to provide channel partners with a viable alternative choice. I do believe this deal will get done but it is going to take some additional time. There may be some information that needs to be presented so the DOJ can make a better-informed decision. At the end of the day the portfolios and strengths of these companies are complementary. I believe customers and partners win with a stronger number two in the market [competing against Cisco].”