HPE Completes $925M Silver Peak Deal As Street Remains Sidelined

Hewlett Packard Enterprise announced the completion of its acquisition of Silver Peak, a software-defined wide area network (SD-WAN) company, in a transaction valued at $925 million

HPE (HPE) said that Silver Peak will become part of Aruba, which is one of its business units. More specifically, the deal will complement Aruba ESP (edge services platform) and help accelerate enterprise cloud transformation. The combination seeks to create a comprehensive edge-to-cloud networking solution covering all aspects of wired, wireless local area networking (LAN) and wide area networking (WAN).

The acquisition is poised to drive “significant” revenue opportunities which will be accretive to its intelligent edge segment revenue growth and gross margin, the company said. It expects the transaction to be neutral to non-GAAP EPS in FY22. The company will discuss how the integration of Silver Peak will create value and enhance growth and profitability on October 15, it said.

“WAN transformation is a key component of HPE’s Intelligent Edge and edge-to-cloud vision and growth strategy,” said Antonio Neri CEO of HPE. “Armed with a comprehensive SD-WAN portfolio with the addition of Silver Peak, we will accelerate the delivery of a true distributed cloud model and cloud experience for all apps and data wherever they live.”

HPE added that the hybrid workplace trend boosts the need for enterprises to extend connectivity to branch locations and to make work-from-home experiences more secure. Enterprises are increasingly investing in SD-WAN technologies as legacy WAN architectures incur relatively high costs and are cumbersome to operate, the company noted.

By combining Silver Peak’s SD-WAN technology with Aruba’s SD-Branch and remote worker solutions, customers can simplify branch office and WAN deployments to empower remote workforces, enable cloud-connected distributed enterprises, and transform business operations, the company added.

As part of the acquisition, Silver Peak founder and CEO David Hughes, will join HPE as the senior vice president of the WAN business within Aruba.

Oppenheimer analyst George Iwanyc last month reiterated a Buy rating on the stock with a $13 price target (41% upside potential). (See HPE stock analysis on TipRanks)

“Going forward, we expect HPE’s fortunes will largely be tied to macro conditions near-term,” Iwanyc wrote in a note to investors. “Nonetheless, there are positives under the surface as the company is still seeing solid traction for its new CX 62/6300 switches, which can help it compete against Cisco (Catalyst 92/9300) in the high-end of the campus switch market heading into 2021.”

The analyst believes that longer-term, the “CX 6000 switches can enable campus switch share gains”.

With HPE shares down 42%, the rest of the Street is currently sidelined on the stock. The Hold analyst consensus breaks down into 6 Holds, 2 Sells and 3 Buys. The $10.83 average analyst price target implies 17% upside potential over the coming year.