Analysis: With HPE-Juniper deal now cleared, what’s ahead for customers?

Now that Hewlett Packard Enterprise Co. and Juniper Networks Inc. this weekend settled with the U.S. Department of Justice, the $14 billion deal that will bring Juniper’s networking and security assets into the HPE portfolio will enable HPE to continue its transformation to a networking-first company.

Many industry watchers, me included, had started to wonder if any agreement could be reached prior to the upcoming July 9 court date. Last week HPE held its annual “Discover” user event and it was clear, while the company was optimistic the deal would close, it had still been pushing forward with driving new artificial intelligence features into the Aruba networking portfolio. The DOJ’s assertion was that the combination of Cisco and HPE+Juniper would control over 70% of the U.S. enterprise wireless local-area networking market and this would create competitive imbalance.

In my opinion, this has always been a weak argument as Cisco’s share is so large that it plus almost anyone would have dominant share. Also, history has shown that dominant share can always be eroded quickly when markets transition. At one time, Cisco owned more than 90% of the branch router market, but the rise of software-defined wide-area networking created a transition that enabled VMware VeloCloud, Fortinet, HPE and others to grab big chunks of share. The smartphone market once dominated by Palm, was usurped by BlackBerry and then again upended with the rise of Apple and Android.

AI is coming to networking, and it will create its own transition for both wired and wireless networks. Last year, I conducted an “AI in networking” study with Bob Laliberte from theCube Research and we asked how likely companies would be to switch vendors if the AI was better and more than 90% said they would. There’s nothing unique about North American Wi-Fi and change will come with better products, so Justice chief Pam Bondi and the rest of the DOJ could have just let things play out. But alas, they didn’t, and it tossed a bit of monkey wrench into the acquisition of Juniper by HPE.

Settling didn’t come without a price. HPE had to make a couple of concessions. The first is the company has agreed to divest its “Instant On” campus and branch Wi-Fi business, which is targeted to companies with little to no information technology staff. Though this is an excellent product, it’s not a core part of the business and the impact should not be significant. HPE has 180 days to find a buyer for the business which includes all assets, R&D, intellectual property and customers related to Instant On.

The other concession is the HPE has agreed to license Mist for up to two winning bidders of the license, which will be determined through an auction process. Upon closing (no date was given), HPE will have 180 days to auction the AI Ops for Mist Source Code to a bidder that is acceptable to the United States, which will be determined by the DOJ. The government has allowed for three or more companies to bid. If multiple bidders exceed $8 million, only two will be granted rights to the source code.

Also, at the option of the winning licensee, HPE-Juniper will facilitate the transfer of up to 30 Juniper engineers familiar with the source code and up to 25 sales personnel who are experienced in selling Mist. HPE-Juniper will also provide financial incentives to encourage employees to transfer to the acquiring company. The license will include a one-year non-solicit provision preventing other employees to be poached. Lastly, 12 months of transition services will be included for the winning bidders.

Licensing the Mist code is a curious provision. I understand how divesting Instant On reduces the combined market share. But forcing HPE-Juniper to license Mist doesn’t do anything but put best-in-class AI Ops networking software in the hands of another company. That’s perplexing and, in my opinion, shows the DOJ didn’t really understand the intricacies of this.

Regardless, all the hurdles are now out of the way and other requiring a judges signature all hurdles are out of way and both companies can move on. At Discover, Neri led off with networking and was emphatic at that the network will play a key role in not just AI, but modern IT. It’s the foundation for everything today as we live in a world where everything is connected. The HPE Aruba Networking portfolio is excellent and complementing that with Mist AI can act as an accelerant for HPE to establish itself as not just a compute leader but in networking.

For Juniper, the company has been one of the most innovative AI networking companies and now it gives it a much bigger R&D budget, more customers and the ability to tie into a compute stack for integrated solutions.

Over the past 18 months I’ve talked to several Juniper and HPE customers and they were a combination of curious, nervous and excited. Most customers understand the importance of AI to networking but have been concerned about what happens to their products moving forward. Will HPE keep one over the other? Will some be end-of-lifed? Will customers be forced to transition? These are all excellent questions I’ve asked HPE and Juniper management.

Both companies have been consistent with their responses that there are no plans to disrupt customers, and both sets of products will live on and eventually brought together but no one will be forced. If one looks back at how HPE handled Aruba, the commentary is consistent with this. This creates more work for HPE, but it’s the right thing to do and the company has generally deferred to customer satisfaction, even if it’s a hit to margins.

Though I was never a fan of the DOJ’s basis for the lawsuit, it is good to see the settlement as all parties can now move forward. Will Juniper be the elixir that transforms HPE? Only time will tell, but at least now the two companies can move forward and that’s important not just to them but to their customers, channel partners and the broader networking industry.

Zeus Kerravala is a principal analyst at ZK Research, a division of Kerravala Consulting. He wrote this article for SiliconANGLE.

Image: HPE