We have heard whispers from industry insiders for some time, but now it's official. The networking and communications industries are consolidating. What impact will the new organisations now being formed - offering both networking gear and communications solutions - have on the marketplace?
Change is often seen in a negative light, but without doubt, on this occasion, change is positive, says Graham Duxbury, CEO Duxbury Networking. In fact, the changes we already see on the horizon are very exciting and bode well for the future.
The following reports will give readers a chance to draw their own conclusions. The Lippis Report, targeted at network and IT business decision makers, represents one of most innovative network resources in the industry. The second is from Ted Ritter, a respected research analyst with Nemertes Research.
A New Siemens Emerges (Lippis Report Issue 110)
In June, there were only three firms which offered both networks and communications: Cisco, 3Com and Nortel. Then Siemens AG and The Gores Group created a joint venture and populated it with Siemens Enterprise Communications, Enterasys and SER solutions, creating the fourth firm to offer both networking gear and communication solutions. The JV name is Siemens Enterprise Communications. The new Siemens will be the second largest firm offering both enterprise networks and communications, larger than 3Com and Nortel but still dwarfed by Cisco.
The new Siemens will be a $5 billion firm with more than a million customers, 15 000 employees and a presence in 80 countries, according to a fact sheet on the Siemens Enterprise Communications Web site. The Gores Group will own a 51% stake in the joint venture while Siemens AG retains 49% ownership. While the new Siemens will be the second largest networks and communications concern focused on the enterprise market, its share distribution between Siemens, Enterasys and SER are not aligned.
Siemens is the fourth largest VOIP equipment supplier according to Dell 'Oro but much of its share resides in Europe. Siemens owns nearly a 10% share of the US market for Enterprise Telephony according to Synergy Research Group and has a leadership position (nearly 20% share) of western Europe's Enterprise Telephony market. Over the past eighteen months Siemens has locked up German distribution channels to other competitors by signing deals with new indirect channel partners. By contrast, market share for Enterasys and SER Solution is concentrated in North America.
This may help Siemens grow its current 10% share of the North American VOIP market while boosting Enterasys and SER Solutions European market share. In short, this JV creates a global provider of enterprise networks and communications, which is matched and surpassed only by Cisco. It's clear that software economics associated with unified communications has forced a consolidation in this industry as revenue from fixed-point phones drops from $600/phone to a software license of $8/softphone. Siemens and its customers are better off as a combined firm with a broader product portfolio. This JV can only be good news for Enterasys and SER as they both gain new channels into the European market and work on developing products and architectures that leverage networks and communications. Enterasys and SER customers should be delighted as there will now be a new path for their products.
It will take time for this JV to solidify, being spread over large geographic distances with mixed cultures and different sales channels and partners to rationalise. Here too there needs to be a solid strategy, vision and architecture which links the three entities together so that customers understand how their investments will grow over time and add value to their operations.
To read the full report click here.
Nemertes Impact Analysis: Gores Group Makes Its First Move toward Becoming an Alternative to Cisco (Ted Ritter, Research Analyst)
Siemens AG and private equity investor Gores Group have formed a joint venture seeded with Siemens Enterprise Networks (SEN), Enterasys (networking and security), SER (call centre solutions) and a EUR 350 million war chest. Gores Group will hold 51% in the joint venture and Mark Stone from Gores will be the Chairman and interim CEO.
Enterasys and SEN are two companies with strong technology but weak market positions, as underscored in Nemertes Advanced Communications Services benchmark, where participants rated SENs VOIP technology second best overall, beating out market leaders Cisco, Nortel Networks, and privately-held Avaya. This is a big first step, but to succeed Gores Group, more must be done; they need to present a clear vision.
Impacts:
Enterprises: If you are an SEN or Enterasys customer, push hard for product integration road maps.
Vendors: All communications vendors should be very concerned. Start planning your defense now!
Investors: Consolidation - first Brocade/Foundry and now SEN/Enterasys. Look for more additional acquisition targets in storage, systems management and virtualisation.
To read the full report click here.
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