Arista, Pure Storage, A10 Seen As Potential M&A Targets For Hewlett Packard Enterprise

Oppenheimer sees Arista Networks Inc (NYSE: ANET), Pure Storage Inc (NYSE: PSTG) and A10 Networks Inc (NYSE: ATEN) as potential takeover targets for Hewlett Packard Enterprise Co (NYSE: HPE).

The comments came as investors question HPE's next steps as a hardware-centric company amid two pending spinoffs (Services and Software).

On its recent earnings call, management made it clear it would explore acquisitions. In the past, HPE has bought companies for a price range of $2 billion–$3 billion.

“We believe HPE will have to increasingly "stretch" these limits given rising competitive pressures and see hyperconverged, data networking, SD-WAN, and storage as areas of focus,” analyst Ittai Kidron wrote in a note.

Related Link: Barclays Advises Profit Taking In Hewlett Packard Enterprise, Sees Lack Of Upside

Kidron has an Outperform rating and $25 price target on HPE shares.

Below is a look at how the potential targets could benefit HPE, according to Kidron:

Arista Networks

“Arista would turn HPE into the No. 1/2 vendor in every hardware market segment and address its most gaping product portfolio hole— DC switching. Plugging Arista into HPE's channel would help Arista target Cisco Systems, Inc. (NASDAQ: CSCO)'s traditional customer base and significantly increase its opportunity.”

Pure Storage

“Although overlapping in their all-flash array (AFA) product portfolios, Pure could not only add market-leading technology to HPE, but also more importantly help it break into non-HPE customers, something 3PAR hasn't done.”

Although Pure Storage fits HPE's criteria, Kidron noted that a potential deal would depend on its internal priorities.

A10 Networks

“We think A10 fits perfectly with HPE's acquisition MO—differentiated solution and attractive growth/margin profile at a reasonable price.”

“A10's ADC and security solutions would bolster HPE's data center offerings, allowing for a stronger bundled offering. We don't necessarily see an urgent need to move, although, given A10's market cap, an acquisition wouldn't need to wait until after the ES/Software transactions.”

Hyperconverged Systems

Kidron said an acquisition of private hyperconverged vendor (Simplivity or Pivot3) would boost HPE’s position in the highest-growth segment of the enterprise hardware market, apart from defending its strong server and storage installed base.

Other Privates

Among the private players, Kidron said potential targets include Mesosphere, in which HPE is a key investor, as well as Puppet Labs, Chef, and RightScale. The analyst also noted CloudGenix, VeloCloud, and Viptela in SD-WAN, a clear fit given HPE's push to address the branch/edge.

At Last Check ...

• A10 was down 0.42 percent at $9.41.
• Arista Networks was down 1 percent at $79.91.
• HPE was down 1.06 percent at $21.54.
• Pure Storage was down 2.2 percent at $12.88.

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