In announcing the merger of Siemens AG’s carrier networking business with that of Nokia Corp on Monday, the German conglomerate’s CEO Klaus Kleinfeld also said he was in talks to form a number two player in the enterprise comms market.
He also said that Siemens does not want to have a long-term investment in enterprise comms, which is another way of saying that he plans a two-stage disposal of the assets, firstly with a partnership, then a sale to the trade partner.
This was an intriguing revelation that inevitably led to speculation as to the identity of the prospective suitor. The list is not immense, so here, in alphabetical order, are the ones Computer Business Review considers the most and least likely candidates.
The French group has an enterprise comms business which, unlike Siemens, extends to fixed-line data networking products, though it is no heavy hitter there. It is probably the least likely partner, however, given that Nokia Siemens will be a direct competitor to Alcatel/Lucent in the carrier market, which would require a fairly thick Chinese wall to keep the two sides apart.
It depends what market Kleinfeld wants to be number two in. If he was referring only to enterprise voice, then Avaya could actually be a merger candidate, as it is number one in the US and number two in Europe. That said, it has no data products, so a merger would only bring the partners greater presence in each other’s geographies and leave them poorly placed to talk voice-data convergence.
This member of the Seven Dwarfs that compete with Cisco in Ethernet switching got so sick over the last few years that it was taken private. It exited the stock market with a run rate of $200m, making it too small to form a number two player, even with Siemens’ $2.5bn enterprise comms revenue.
That said, the private equity firms that took Enterasys private where known at the time to be looking to fund further consolidation in the networking market, so the Siemens Comms business could conceivably be part of a broader operation. Still, a lot more assets would need to be involved to mount a company that could constitute a number two player in the market, so on balance, this looks to be an outside chance.
The Swedish company has no data products and doesn’t need more enterprise voice technology. It would have made more sense for Ericsson to buy Lucent, but it was beaten to the punch by Alcatel.
Extreme and Foundry
Another couple of Dwarfs, these two are so often mentioned in the same breath they might almost be the Tweedledum and Tweedledee of networking. Both are around the $400m revenue mark and both are fundamentally switch vendors, though Foundry is somewhat broader in its portfolio, extending to high-end routers, application firewalls and security products. Neither could deliver the market clout Kleinfeld is looking for, however.
HP’s data networking arm has done a good job of taking market share from Cisco and 3Com by delivering much of the functionality of a Cisco box at a fraction of the cost. It’s already no. 2 in EMEA with around 17% market share, and globally is at around 9%. ProCurve currently partners with Canadian comms vendor Mitel for voice but might be persuaded to switch to Siemens.
A merger of ProCurve and Siemens Comms’ enterprise business would, however, also mean a rethink on the WiFi front, as the German group bought Chantry, while HP recently launched a whole new portfolio from an OEM supplier thought to be Symbol. On the plus side, it would certainly bring Siemens the HP channel, though just how profitable the ProCurve business is, given its aggressive pricing to win market share, is questionable.
The most serious player out of Asia in voice and data, enterprise and carrier networking, Huawei’s data switches are already resold by Siemens. The Chinese company has been an aggressive challenger on all fronts in recent years and makes no secret of its desire to grow its international business, which has just outstripped its domestic operations in revenue.
Its name is tainted in the US, however, by the patent lawsuit brought by Cisco earlier this decade, which resulted in it becoming FutureWei for that market and all but disappearing from the map there. It would probably not be the best partner for an aggressive assault on the North American market.
Siemens already resells Juniper’s routers and is responsible for over 10% of the Californian company’s $2bn annual revenue, which is why Juniper has to publish the fact in its SEC filings. On the face of it, the synergies are compelling, while there is virtually no overlap: Siemens brings voice comms and WiFi, Juniper its routing, security and optimization/acceleration portfolios.
One might point to the absence of Ethernet switches in an eventual merger, though there would continue to be the option of reselling Huawei, and at least one informed source tells Computer Business Review Juniper has a hush-hush project to develop its own commodity switch offerings, based on merchant silicon from the likes of Broadcom and Marvell.
Juniper is not, however, a major player in enterprise networking outside of the security space, so any tie-up would be more of a play for future market development than a marriage of giants.
Motorola doesn’t have a fixed-line data business, though it does have WiFi and wireless mesh, both of which sell into enterprise, and it is certainly active in the fixed-mobile convergence (FMC) market with its Seamless Mobility vision, even if for the time being it is more a vision than a reality.
FMC for the enterprise (as distinct from FMC infrastructures for carriers) tends to be all about PBX extension at the current stage of development of the technology, so Siemens’ IP PBX portfolio could drop neatly into an offering alongside Motorola’s smart phones, running IP clients on the handsets to enable them to integrate with the enterprise PBX.
In WiFi, Motorola is an investor in and close to Trapeze, a direct competitor to Siemens’ Chantry portfolio. Fundamentally, Motorola’s absence from switching or routing would make it a less than ideal merger partner for the Siemens comms business, and of course, the competition with Nokia Siemens in carrier networking would make it a complicated ally on the enterprise side.
The Canadian heavyweight has definitely been on the ropes in recent years, but appears to be bouncing back at last under former Motorola COO Mike Zafirovski. It has gained focus, shed underperforming businesses and launched some interesting technologies, such as Provider Backbone Transport for the carrier Ethernet market.
Of course, today it competes directly with Siemens in IP PBX, IP phones and WiFi, so there would need to be some decisions on which to rationalize, but with $11bn revenue from Nortel, Siemens might be willing to make sacrifices.
Still, a union of two IP PBX vendors looks destined to be fraught with difficulties, particularly when one of them is only just emerging from its own inferno of financial scandal, massive write-downs and repeated postponement of SEC filings.
This company went from networking titan to also-ran, with its one remaining strong suit being its massive presence in SME/SMB. It has yet to return to profitability and is engaged in yet another rethink of its strategy.
3Com’s partnership with Huawei in China was billed as its route back into enterprise, but the manner in which it left that space, leaving its CoreBuilder enterprise switch customers without a 3Com product for the future, left many of them so embittered that it faces an uphill battle to get back in. And at a $1bn run rate, it probably doesn’t represent quite the partner Siemens needs to form a major player.
The list has only one Asian manufacturer, Huawei, all the other names like D-Link, Allied Telesis and SMC coming at the market from a consumer/SoHo background and trying to move up, making them unsuitable partners for Siemens.
Of course, Cisco itself is the 800lb gorilla of enterprise data networking (both switches and routers), but is still only a game challenger in VoIP, where it runs third behind Avaya and Nortel in North America.
However, all the assets Siemens has to offer in enterprise comms compete with something Cisco already has, from the CallManager IP PBX to the AiroNet and Airespace technologies in WLAN.