Siemens Shows That Sometimes A Company Needs To Think Small
By Nancy Beiles
Dow Jones Newswires -- March 8, 1999
NEW YORK (Dow Jones)--The move by Germany's Siemens A.G. to cross the Atlantic and start a U.S. data networking
subsidiary indicates the lengths to which telecommunications companies will go to build a presence in the networking
industry.
As the ability to transmit data becomes increasingly important for telecommunications companies, those that do not already
lay claim to some data-networking assets are expected to craft acquisition strategies to get them.
"I think you're still going to see further (industry) consolidation," said Peter Rubicam, an analyst with Buckingham Securities.
Siemens provided the latest evidence of the imperative to build data-networking capacity by announcing Monday that it
bought Castle Networks Inc. and Argon Network Inc., two start-up data-networking companies, to form Unisphere Solutions,
a U.S. data-networking subsidiary.
Siemens' move comes in the wake of Alcatel Alsthom's (ala) announcement last week that it will buy Xylan Corp. (XYLN).
That pairing is in addition to Lucent Technologies Inc.'s (LU) planned purchase of Ascend Communications Inc. (ASND) and
Northern Telecom Ltd.'s (NT) acquisition of Bay Networks last year.
And those are just the most prominent deals in the sector. All told, 48 public or private data-networking companies were
bought last year for a total of $23 billion, according to SG Cowen & Co. analyst Chris Stix.
With the ranks of data-networking companies dwindling fast, telecommunications companies that still need to build their data
transmission capacities may follow the lead of Siemens and buy industry start-ups, analysts said. "As the large players in the
networking business disappear, if you are going to acquire the technology, you are going to have to acquire small pieces of it at
a time," said Tucker Anthony analyst William Becklean.
Indeed, there are just four publicly-traded major data-networking companies left: Cisco Systems Inc. (CSCO), 3Com Corp.
(COMS), Cabletron Systems Inc. (CS) and Fore Systems Inc. (FORE). Of these, analysts peg Fore as the most likely to
become a takeover target because of its strength in a special kind of packet-switching technology - which is used by the
Internet to transmit data - called asynchronous transfer mode, or ATM.
Whether targeting one of the remaining large players or buying small start-ups, takeover activity in the industry may well
continue across borders. Sweden's Ericsson Telephone Co. (ERICY) and Japan's NEC Corp. (NIPNY) and Fujistu Ltd. are
among the companies that still need to shore up their position in data networking, Becklean said, adding that they could be
part of the next wave of deals in the industry.
While others may follow Siemen's strategy and try to build data-networking business with acquisitions of small start-ups,
Siemens is not the first to take such an approach. Most notably perhaps, before making overtures for Ascend, Lucent bought
several privately-held data-networking companies, including Yurie Systems, Prominet and Livingston Enterprises. |
