The planned acquisition of Unisphere Networks by Juniper Networks willbenefit Juniper and Siemens, which is Unisphere's largest shareholder.
However, the deal will have them moving in opposite directions: Siemenscontinues to retreat from its attempt to offer a complete range ofnetworking products, while Juniper is expanding out of its niche in high-endcore routers.
Retrenchment at Siemens
Siemens formed Unisphere in 1999 as a subsidiary it planned eventually to spin off,unencumbered by the "big company" ways of its parent, to addressnext-generation networking. The idea was that a small company could positionitself faster in the growing IP (Internet Protocol) market. Unisphere brought togetherthree acquisitions--Redstone Communications for IP edge routing, CastleNetworks for next-generation voice, and Argon Networks for IP andasynchronous transfer mode (ATM) core switching.
Unisphere had the greatest market success with Redstone's products(now called ERX) and also found some traction with the Castle products. Argon'sproducts never made it to market, although some of the technology found itsway into other offerings. Recently, Unisphere sold the Castle products toits parent company to augment Siemens' next-generation voice offerings (theSurpass product line). That move left Unisphere as a pure edge-routing IPcompany.
Siemens originally hoped Unisphere would give it a stronger position in theNorth American market. However, it failed to create synergies in research and development,product marketing and market positioning. With the sale of the subsidiary,the German company will back away from having its own Internet and IP data products forservice providers. Instead, it will resell Juniper's products.
There's still some strength in the product line for the next-generation voicemarket that Siemens is marketing to a worldwide diversified customer base. IPtelephony will be a key component in next-generation networks of networkservice providers (NSPs), but that market is developing very slowly,especially because NSPs have reined in capital expenditures.
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A full plate at Juniper
Juniper has done a respectable, if not excellent, job of establishing itselfin the core-router space. However, growth in that market may be slowing asInternet traffic moderates and as more Internet traffic and intelligence areembedded in the edge of the network. In addition, Avici Systems, Cisco andother companies provide fierce competition in high-end core routers.
The merged Juniper and Unisphere will have a solid position in core and edgetechnology. Juniper will have a complete IP product portfolio, globalpresence and market coverage, as well as worldwide distribution and support.
The real question is when growth will return to the target markets of thecombined company:
• NSPs: Nearly all of them are struggling under high debt and flat orfalling revenue.
• The United States: The market here has been particularly hard-hit.
• Voice/data convergence: This market has been slow to develop.
• ATM: Look for ATM interfaces to Juniper's own product line
At $750 million, this is a large acquisition to make in an industry that isstruggling so much. A further challenge lies in melding the cultures of thetwo companies.
Finally, the edge router market will continue to be highly contested.Juniper must quickly integrate its products (using a common networkmanagement system) and sell them rapidly through its U.S. sales organizationand through Siemens' organization globally. Juniper would have a goodopportunity to sell the newly integrated edge routers to its core-routercustomers. But some channel conflict could arise because Ericsson alsomaintains an original equipment manufacturer relationship with Juniper.
NSPs will benefit from the increased competition in edge routing.
(For a related commentary on the outlook for a recovery in the telecommunications market, see gartner.com.)
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