Where is Siemens networking headed?

Where is Siemens networking headed?

Something had to go. Siemens AG agreed on Monday to abandon its loss-making edge router company Unisphere Networks in a bid to focus on its lucrative core voice business. The move was prompted in large part by a sharp decline in carrier and corporate spending on new equipment last year, with little hope of recovery before 2003. The question now is: Where is Siemens' networking strategy headed?

The decision to sell the router specialist to Juniper Networks for US$375 million and 36.5 million shares marks the end of the German vendor's brief and unsuccessful foray into core Internet technology, an area the company had been late to enter but eager to conquer. Siemens, based in Munich, launched Unisphere in 1999 after acquiring three networking startups and folding them into one unit. Unisphere's sole mission, company executives agree, was to steal market share from Cisco Systems, the world's leading supplier of routers. The plan even called for taking the startup public. Neither happened.

In select interviews with the German business press on Monday, Thomas Ganswindt, chairman of the Siemens networking division ICN, conceded that Siemens was sad to abandon the router market as a vendor but happy to have access to a much broader range of core and edge router products, which it intends to sell to both carrier and enterprise customers. Siemens will own 10 percent of Juniper after the deal is closed in July.

In one interview, Ganswindt conceded that Siemens simply couldn't "do it all alone," citing the huge research and development costs in developing sophisticated router technology. These costs come on top of the many other R&D programs in the networking division, he said.

In 2001, ICN posted losses of around €860 million (US$789 million). To steer the division to profitability, Ganswindt said he is planning "major changes" that will go beyond "job cuts." He declined to comment on what other measures he has in mind. Siemens already announced that it will cut 16,500 jobs at the division by the end of 2003 and will reduce costs by €1.5 billion through layoffs and other measures.

Harald Hassenmüller, a spokesman for ICN, said the decision to sell Unisphere "in no way signals a retreat from manufacturing." Hassenmüller said ICN would continue to develop and build the many components necessary to operate a converged voice and data network, both as a carrier and enterprise user. But he conceded that product development in the future "will be increasingly software-centric."

Three weeks prior to the Monday announcement, Unisphere had agreed to spin off its voice business to Siemens. That business consists largely of its softswitch products for integrated voice and data traffic and voice gateway technology, both for carrier and enterprise markets. The carrier product line is called Surpass, in which Siemens has earmarked €375 million for the development of new products in this year alone. The enterprise product family goes by the name of HipathJuniper, has consistently stressed that all its products are based on the same operating system, Junos. Juniper Chief Executive Officer Scott Kriens has said in interviews that the company doesn't plan to combine Unisphere's operating system with Junos, though it will develop a way for customers to view and manage both together. In the past year, Juniper has been branching out from the enterprise market with moves into cable and wireless infrastructure equipment.

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