Commentary: Juniper's Unisphere buy?

By Tim Smith and Jay Pultz, Gartner analysts

The planned acquisition of Unisphere Networks by Juniper Networks will benefit Juniper and Siemens, which is Unisphere's largest shareholder.

However, the deal will have them moving in opposite directions: Siemens continues to retreat from its attempt to offer a complete range of networking products, while Juniper is expanding out of its niche in high-end core routers.

Retrenchment at Siemens
Siemens formed Unisphere in 1999 as a subsidiary it planned eventually to spin off, unencumbered by the "big company" ways of its parent, to address next-generation networking. The idea was that a small company could position itself faster in the growing IP (Internet Protocol) market. Unisphere brought together three acquisitions--Redstone Communications for IP edge routing, Castle Networks for next-generation voice, and Argon Networks for IP and asynchronous transfer mode (ATM) core switching.

Unisphere had the greatest market success with Redstone's products (now called ERX) and also found some traction with the Castle products. Argon's products never made it to market, although some of the technology found its way into other offerings. Recently, Unisphere sold the Castle products to its parent company to augment Siemens' next-generation voice offerings (the Surpass product line). That move left Unisphere as a pure edge-routing IP company.

Siemens originally hoped Unisphere would give it a stronger position in the North American market. However, it failed to create synergies in research and development, product marketing and market positioning. With the sale of the subsidiary, the German company will back away from having its own Internet and IP data products for service providers. Instead, it will resell Juniper's products.

There's still some strength in the product line for the next-generation voice market that Siemens is marketing to a worldwide diversified customer base. IP telephony will be a key component in next-generation networks of network service providers (NSPs), but that market is developing very slowly, especially because NSPs have reined in capital expenditures.

	See news story: With buy, Cisco foes will join forces

Siemens has retrenched more than any other major telecom equipment provider. With partners 3Com and Newbridge Networks, it positioned itself three years ago to match--product for product--the likes of Alcatel, Cisco Systems, Nortel Networks and Lucent Technologies. With the dissolution of the three-way alliance among 3Com, Newbridge and Siemens, and with Alcatel's acquisition of Newbridge, Siemens now focuses on voice for the NSP and enterprise markets, and it acts as a reseller for Cisco and now Juniper for data products such as routers. (Siemens did acquire Efficient Networks, a low-end supplier of routers and digital subscriber line modems.) Indeed, the market will probably support only about three companies that have a comprehensive product portfolio.

A full plate at Juniper
Juniper has done a respectable, if not excellent, job of establishing itself in the core-router space. However, growth in that market may be slowing as Internet traffic moderates and as more Internet traffic and intelligence are embedded in the edge of the network. In addition, Avici Systems, Cisco and other companies provide fierce competition in high-end core routers.

The merged Juniper and Unisphere will have a solid position in core and edge technology. Juniper will have a complete IP product portfolio, global presence and market coverage, as well as worldwide distribution and support.

The real question is when growth will return to the target markets of the combined company:

• NSPs: Nearly all of them are struggling under high debt and flat or falling revenue.

• The United States: The market here has been particularly hard-hit.

• Voice/data convergence: This market has been slow to develop.

• ATM: Look for ATM interfaces to Juniper's own product line

At $750 million, this is a large acquisition to make in an industry that is struggling so much. A further challenge lies in melding the cultures of the two companies.

Finally, the edge router market will continue to be highly contested. Juniper must quickly integrate its products (using a common network management system) and sell them rapidly through its U.S. sales organization and through Siemens' organization globally. Juniper would have a good opportunity to sell the newly integrated edge routers to its core-router customers. But some channel conflict could arise because Ericsson also maintains an original equipment manufacturer relationship with Juniper.

NSPs will benefit from the increased competition in edge routing.

(For a related commentary on the outlook for a recovery in the telecommunications market, see gartner.com.)

Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.