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Commentary: ONI Systems and Sonus Networks testing the IPO waters

It's not always a question of whether networking start-ups such as Sonus and ONI Systems will survive or fail, but a question of acquisition or independence.

    See news story: Start-ups brave industry giants to boost broadband

    By Joe Baylock, Gartner Analyst

    It's not always a question of whether networking start-ups such as Sonus Networks and ONI Systems will survive or fail, but a question of acquisition or independence.

    About a year and a half ago, four promising networking equipment start-ups entered the carrier-grade voice-over-IP gateway market. Sonus was the only one of the four to find its way to the public markets (through its initial public offering). The other three were acquired by more established or larger players: TransMedia Communications by Cisco Systems, Salix Technologies by Tellabs, and Castle Networks by Unisphere Solutions, a Siemens subsidiary. All three had a choice of paths to follow.

    Consolidation has been the trend, and Gartner doesn't see that pattern changing too much. We believe that a ratio of one out of four promising start-ups reaching the IPO phase is quite typical of the future of the networking equipment market.

    It is important to point out, however, that being independent is not necessarily a superior quality; independence is simply the preference of the founders and investors, or the effect of all the big players having made their choices and someone being left standing.

    Gartner believes healthy niches exist for new networking start-ups, particularly because the metabolism of the start-up business is still accelerating via partnerships with larger suppliers and the use of start-up incubators. Such incubators are often associated with venture capital firms that provide office space, management consulting and legal assistance. With such assistance, the start-ups are able to fill the available niches more quickly than ever.

    We believe the likelihood is low of such networking equipment start-ups turning into major players like Cisco, Nortel Networks, the newly refocused Lucent Technologies, Siemens, Ericsson, Nokia, Alcatel or Marconi, which have all been buying into this market. Nonetheless, innovative ideas will continue to be amply rewarded in this market.

    Entire contents, Copyright ? 2000 Gartner Group, 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.