EE Times report on Siemens:
eet.com:80/story/OEG19990308S0010
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Siemens nabs startups to build
Unisphere
By Loring Wirbel
EE Times
(03/08/99, 11:34 a.m. EDT)
NEW YORK — In a widely anticipated move of
unprecedented scope for the communications
industry, Siemens AG (Munich) announced Monday
(March 8) the acquisition of Argon Networks Inc.
(Littleton, Mass.), Castle Networks Inc. (Westford,
Mass.), and a minority investment in Accelerated
Networks Inc. (Moorpark, Calif.), in a deal carrying an
aggregate price tag of more than $1 billion.
Siemens said it will create a dedicated data and
Internet Protocol corporation called Unisphere
Solutions Inc. from these elements. The company,
which will be based in Burlington, Mass., will have
more than 500 employees, including some from
Siemens' Information and Communications Network
(ICN) group in Boca Raton, Fla., and dedicated
employees from Munich. Siemens would not reveal
the amount of the purchase or investment price for
each company, but Siemens ICN board member Tony
Maher cited press reports that Siemens paid about
$300 million cash for Argon, approximately $240
million cash for Castle, and made an investment in
Accelerated of approximately $30 million. Maher said
that reports that Siemens would acquire a business
unit of 3Com were incorrect; however, several
executives from 3Com's development and OEM
relationship team will join Unisphere.
Martin Clague, former general manager of IBM Corp.'s
global network computing solutions operation, will
become chief executive officer of Unisphere. Maher
said the company will have a strict U.S.-based
management and development plan, because "the
U.S. is the crucible of change and innovation for the
world."
Siemens is already a significant player in circuit
switches for the central office, broadband packet
switches and optical wavelength division multiplexing
equipment. But its new round of acquisitions
represents a bid to be as sitting at the forefront of
all major giga-router, circuit-packet mediation switch
and integrated access device markets. The effort to
buy into the North American market reflects, in part,
Siemens' failure to be taken seriously in LAN/WAN
edge devices through its earlier three-way alliance
with Newbridge Networks Inc. (Kanata, Ontario) and
3Com.
The acquisitions represent the way most telecom and
internetworking OEMs gain new technology these
days. As internal R&D operations shrink at companies
like Lucent Technologies Inc. and Cisco Systems Inc.,
companies take it for granted that they must
encourage spinoff startup operations, which are later
acquired, as a means to enable de facto R&D efforts
into advanced packet-switching and
broadband-access markets.
But because the European market is not friendly to
capital formation for venture startups, European
telecommunications giants have been forced to look
to North America for acquisitions in critical areas.
Nokia has snared such companies as Ipsilon
Networks Inc., Vienna Systems Inc., and Diamond
Lane Communications Inc. in recent months. Alcatel
SA, already swelled from acquisitions of DSC
Communications Inc. and Packet Engines Inc.,
performed a double whammy in the United States
last week by picking up Xylan Corp. and Assured
Access Inc. in the space of three days. Even so,
Siemens' latest investments represent a record of
sorts.
Argon, founded in 1997 by Wellfleet Communications
founders Michael Grady and Steve Willis, is one of
the growing number of companies that have sought
to challenge Cisco in carrier and Internet service
provider markets with a fast router architecture,
dependent on header-analysis ASICs and optimized
for Internet Protocol (IP). Though competition has
been tough against the likes of Avici Systems,
Juniper Networks, Pluris, Nexabit, and Neo Networks,
Argon has moved its Giga Packet Node system into
early trials with several carriers.
Castle Networks, on the other hand, has aimed at
the realm where IP packet switches must talk to
Signaling System 7 circuit networks. Its 2100
Universal Service Matrix was introduced at January's
ComNet, where it fought for attention alongside
hybrid switches from the likes of TransMedia, Salix
Technologies Inc., and Dynarc Inc. Through its
simultaneous acquisition of a fast router company
and a mediation switch company, Siemens has
staked a claim in the two most advanced
transport-layer technologies in a central office.
The Accelerated investment has a different goal in
mind: traffic aggregation. Accelerated, founded in
1997 by Suresh Nihalani of ACT Networks, is
attempting to address problems of digital subscriber
line, ATM, and T1/T3 aggregation with products that
reside in both the telco central office and the
customer premises. The investment could extend
Siemens' reach to important smaller central offices,
ISP Points of Presence, and customer enterprise
locations.
Several divisions within Siemens' Boca Raton group
will move under Unisphere management, including
Voice Over ATM, Directory Services, and Internet
Solutions. In addition, the Siemens Technology
Innovation Center in Canada will become part of
Unisphere.
Despite the key role Dense Wave Division
Multiplexing (DWDM) will play in the future of Argon
and Castle Systems, Siemens' optical networks
division in Boca Raton will not become part of the
new company. But Maher said Siemens recognized
how critical DWDM will be for broadband IP services,
and will address the issue with tight working
relationships between Unisphere and Siemens ICN.
Down on Main Street
Siemens' earlier strategy for revising its telephony
model to fit the data-centric North American market
revolved around a three-way tie with Newbridge and
3Com. Siemens was an early OEM partner for
Newbridge's MainStreet asynchronous transfer mode
switch, and collaborated with Newbridge on
developing a second ATM architecture for the
enterprise, Vivid. Over time, the Siemens and
Newbridge broadband switches merged into a unified
line, MainStreet Xpress.
But as early as 1996, when alliances with 3Com were
strengthened, the ties to Newbridge were becoming
frayed. According to former MainStreet executives,
this was less the result of a culture clash, or of a
diminished belief in ATM at either company, than it
was a problem of significant brain drain at
Newbridge. The Canadian company had spread itself
too thin by investing in a multitude of startups
through its affiliates program, one source said, and
as a result, Newbridge's U.S. marketing based in
Herndon, Va., began to suffer. Newbridge's ill-fated
attempt to acquire UB (Ungermann-Bass) Networks
Inc. in late 1996 only added to the malaise.
"The hemorrhage of talent Newbridge suffered from
1996 to 1998 was significant," the source said.
"Siemens was stuck on a train that wasn't going
anywhere."
Since Alan Lutz became chief executive of Newbridge
in 1998, he has sold off many affiliated operations
and tightened the company's focus, but its path in
broadband network design has diverged significantly
from Siemens' as a result. Nevertheless, Mayer
stressed at Monday's press conference that he has
kept Newbridge fully informed of the new
acquisitions, and that Siemens expects to continue to
work closely with Newbridge.
The 3Com relationship will be expanded in the future
through the Unisphere formation as well, he said.
Though financial analysts are worried that 3Com
appears to be struggling, many of the router and
switch products from core 3Com groups, as well as
the telco access products acquired through U.S.
Robotics Inc., could be central to Unisphere's plans
to expand outside of large switches and routers for
broadband backbones.
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