Can global firms cash in on U.S. network market?

Seven months after buying networking firm Fore Systems, British conglomerate Marconi today laid out its strategy to tackle the North American communications equipment market. The move is the latest in a series of strategic plays by international firms interested in taking advantage of the demand for Internet equipment.

Marconi, formerly Britain's General Electric Company, joins a group of telecommunication equipment makers--France's Alcatel, Sweden's Ericsson, and Germany's Siemens--that are buying data networking companies based in the United States to compete against local leaders Cisco Systems, Lucent Technologies, and others.

The challenge is to build "converged" equipment that can combine voice and data transmissions on a single Internet-based network.

Yet international firms like Marconi face hurdles if they are to succeed in the U.S. market, analysts say.

"The European players are in an interesting predicament. They have to not only worry about building equipment that handles convergence of voice and data, they're also dealing with the fact that a lot of this happens in the U.S. market first," said Esmeralda Silva, analyst with market researcher International Data Corporation.

Buy to survive
Marconi recently combined its most recent U.S. acquisitions--Fore and fiber-optic firm Reltec--with its own telecommunications equipment unit to form a new division called Marconi Communications, based in Pittsburgh.

A group of executives, including Fore's CEO, left the firm following the reorganization last week.

The buy-and-build strategy is a familiar one for many international firms trying to break into the U.S. market, Silva said.

"If you want to be a contender in the network of the future, you have to be able to penetrate the U.S. market," Silva said. "So you buy a lot of U.S. companies and gain access to their installed base of customers and their [sales] channel."

For example, Alcatel recently purchased data networking firm Xylan, while Ericsson acquired router maker Torrent Networking Technologies. Siemens bought several start-up networking firms, such as RedStone Communications, Castle Networks, and Argon Networks.

Silva said that even with the string of acquisitions, foreign firms aren't guaranteed success in the North American market.

"It will be tough, but if you don't begin to have a strategy that sticks with your customers and you don't present a vision for the future of the network, then you'll be left out," Silva said. "They have to get into the market in order to survive."

Other analysts are convinced that as second-tier networking companies are bought, that will only eliminate potential competition for Cisco, Lucent, Nortel Networks, and others.

"The big get bigger," said Craig Johnson, analyst with the Pita Group.

Fore Systems, known for its asynchronous transfer mode (ATM) switches, has sold well into high-end corporations and into some service providers. But it will take some time for Marconi and its own business model to take hold, analysts said.

During a press conference today, Marconi Communications chief executive Mike Parton said he believes his company can compete against the more established networking companies.

"They're top-notch companies and we compete with them all around the world and we're successful today," Parton said. To get its name out to customers and raise its profile, the company will launch an "aggressive" advertising campaign in December and plans to float a public offering in the United States by mid-2000, he said.

Marconi will continue to go after sales of networking equipment to the corporate market. Core sales will focus on optical equipment, enterprise and broadband switches, and network management software. The company plans to release new optical and broadband switch products next year.

While sales of networking equipment to corporations seem stagnant recently, Marconi executives said they believe sales will increase next year as concerns over year 2000 problems fade.