Siemens Enterprise Joint Venture Promises Powerful Fresh Start

| Jul 31, 2008 | Enterprise Technology and Software | Competitive Intelligence Report

| Analyst: Brian Riggs

Current Perspective: Positive
Vendor Importance: Very High
Market Impact: High

Event Summary

July 28, 2008 – Private equity firm The Gores Group has purchased 51% ownership of Siemens Enterprise Communications. On an operational level, business will be driven by Gores. The joint venture will be entitled to continue using the Siemens brand. Key patents and licenses will be transferred to the joint venture. Siemens Enterprise will be combined with Enterasys and SER Solutions, both companies in The Gores portfolio, to create a multinational developer of end-to-end voice, data, and contact center solutions. The deal of the joint venture is expected to be closed at the end of Siemens fiscal year 2008, pending regulatory approval.

Analytical Summary

• Current Perspective: Positive on The Gores Group’s purchasing the majority ownership of Siemens Enterprise Communications, because it helps remove the stigma of uncertainty that has characterized the communications company for the past two years. Additionally, plans to integrate Siemens Enterprise with Enterasys and SER Solutions promises to create a powerful new player in the market for enterprise networking and communications solutions. However, substantial changes may still be required both for Siemens Enterprise to be the profitable business Gores will demand and for the three businesses to make up the new Gores company to create a cohesive organization. As a result, it remains to be seen what impact these changes will have on Siemens Enterprise’s products, customers and business model.

• Vendor Importance: Very high to Siemens Enterprise Communications, because the company absolutely needed to start transitioning away from a parent company no longer committed to playing a role in the market for communications systems and software. The deal gives majority ownership and operational direction to a private equity firm with a proven record of turning around financially troubled businesses, possessing a portfolio of complementary companies, and clearly interested in the enterprise market. This is a big step forward for Siemens Enterprise.

• Market Impact: High on the enterprise communications market, because Gores’ acquisition of Siemens Enterprise promises to result in a much more stable company, and for this reason one in a better position to compete against its many rivals, win new business and meet customer needs in a rapidly evolving market segment. The proposed Enterasys-SER-Siemens Enterprise business, for its part, has the potential of delivering a much more comprehensive set of enterprise networking and communications solutions. One downside from the overall market perspective is that this deal does not achieve any of the consolidation that many think is required; however, the new entity looks well-prepared to be a major player in that consolidation when and if it occurs.

Recommended Competitor Actions

• A new company composed of Siemens Enterprise Communications, Enterasys and SER Solutions has the potential of creating a much stronger competitor to Cisco, Alcatel-Lucent, Nortel and others in enterprise markets capable of delivering end-to-end voice and data solutions. These companies should prepare their sales staffs and resellers for the presence of a new competitor capable of offering a very broad line of enterprise products. They should characterize the new joint venture’s offerings as perhaps interoperable with one another (thanks to interoperability work that has long existed between Enterasys and Siemens Enterprise), but is not particularly differentiated at present.

• Siemens Enterprise Communications’ competitors should respond to The Gores investment by characterizing it as a company that has not yet proven its ability to sustain profitability, in the midst of a corporate restructuring initiative that promised to reduce its workforce by 40%, and involved in a joint venture, the details of which have not been clearly defined.

• Avaya and ShoreTel, which both enjoy partnerships with Enterasys, should be prepared to re-evaluate their relationship with the company based on the level of emphasis Enterasys puts on go-to-market activities with Siemens Enterprise. Nortel, which recently signed an OEM agreement with SER Solutions, and data networking vendors such as 3Com, which partner with Siemens Enterprise, should do the same. It may be possible to for these companies to maintain their partnerships with the members of the new Gores joint venture, but they should be prepared to walk a much finer line between competition and cooperation than ever before.

Recommended End User / Customer Actions

• Due to the highly synergistic nature of the three new sister companies’ partners, Siemens Enterprise Communications customers and reseller partners should anticipate little to no product rationalization as a result of product overlap. At the same time, they should remain alert for signs of product attrition resulting from The Gores Group refocusing Siemens Enterprise’s business around certain key products. This is a strategy that Gores employed in previous acquisitions and it may in fact take place again in the current situation.

• Siemens Enterprise Communications customers and reseller partners should seek regular updates on the company’s financial health and ability to support them despite the workforce reductions underway. These same customers and partners should likewise monitor ongoing development and sales of Siemens’ new OpenScape Unified Communications Server platform to ensure that corporate issues do not interfere with its forward momentum.

• Enterprise customers should seek details on product roadmaps and milestones that detail the new combined company’s plans to develop differentiated new solution offerings made up of Siemens, Enterasys and SER products.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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