In a $905million exchange of stock, Efficient Networks (Nasdaq: EFNT)
acquired firewall appliance vendor Netscreen Technologies, a privately
held company based in Santa Clara, California. Efficient Networks is a
developer and supplier of Digital Subscriber Line (DSL) equipment and
technology. Incorporated in Dallas, Texas, Efficient Networks first issued
an IPO last July.
with annual revenue of $22million, is the developer and manufacturer of
the Netscreen ASIC based line of appliance firewalls. Appliance firewalls,
which operate at wire-speed, are among the fastest of the firewall technology
architectures on the market.
On news of the acquisition, Efficient Networks' stock dropped below the
Nasdaq average and the S&P 500. (see Figure 1) Typically, since acquisitions
for stock mean that the acquiring company needs to unload some of its
stock, it is not uncommon for the acquiring company to see a drop in its
share price. Since Efficient Networks has been trading considerably higher
than the Nasdaq average and S&P 500 over the last two months, there is
a good chance that their stock will recover in a near term. In the last
few months, DSL technology has received a lot of publicity about its security
vulnerabilities. Addressing that problem, Efficient Networks noticed an
exceptional technology opportunity and acted on it. Though the Nokia/Checkpoint
firewall appliance dominates the firewall appliance industry, the Netscreen
is a smart new product that is moving in the right direction from a technology
and market perspective. As Proxy firewalls fall out of favor, and appliance
firewalls begin to dominate the market, the Netscreen is perhaps the most
viable challenger of the Nokia/Checkpoint market leader.
1. Efficient Networks' Response to Acquisition Announcement
2. Efficient Networks' Share Value Life History
When SOHOs (Small Office Home Office) and small businesses sign up for
DSL service, Efficient Networks will now have a response when users express
concerns about security. Enabling users to obtain a high-speed Internet
connect and a cutting-edge security solution with one-stop-shopping will
bode well for Efficient Networks.
has four firewall appliance products: the Netscreen-5, the Netscreen-10,
the Netscreen-100, and the Netscreen-1000.
Netscreen-5 is targeted for remote fields offices or SOHOs. The Netscreen-10
is targeted to mid-sized companies. The Netscreen-100 is targeted to e-commerce
sites and large enterprises. Boasting up to 500,000 maximum simultaneous
connections, the Netscreen-1000 is ideal for ISPs and ASPs.
appliance firewalls exceed the Checkpoint/Nokia Firewall-1 appliance firewalls
in possible number of simultaneous connections by a staggering amount.
Where the high-end Nokia IP650 has limitations of a little over 2000 maximum
simultaneous connections per firewall, the Netscreen-100 exceeds that
capability by nearly 60 times that amount - an astounding increase.
Networks made a brilliant acquisition. The Netscreen line of firewalls
are the only firewalls on the market that are positioned to give firewall
market leader Checkpoint a run for their money. With streaming video and
high-bandwidth multi-media support ramping up, Efficient Networks and
Netscreen can provide much more than an "efficient" bandwidth and security
solution. With their ability to get mid-sized companies up and running
on the Internet easily and quickly, Efficient has bought itself into a
major market opportunity.