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Future unclear for Siemens networking start-up

Overwhelming demand for Net-based networking equipment allows Siemens's new firm, Unisphere, to operate independently while still tied to its German parent--yet this delicate balance may be the key to its success or failure.

Can a start-up really be a start-up if it's backed by a multibillion-dollar international giant like Siemens?

Executives at Siemens's North American venture Unisphere Solutions certainly hope so. Overwhelming demand for networking equipment based on Internet technology has allowed the new company--made up of recent acquisitions--to operate independently while still tied to its German parent.

This delicate balance may be the key to Unisphere's success or failure, according to analysts.

Siemens's role was similar to Lucent Technologies' before it was spun off by AT&T--serving as the equipment arm for a German communications market dominated by Deutsche Telecom. As network expenditures among the traditional phone firms have evolved to include more Internet-based equipment, companies like Siemens have been forced to mold to new market demands.

This situation could be a mixed blessing for Unisphere. The company could be viewed as a pawn of a classically slow-moving German juggernaut, or it could emerge as one of the more stable market entrants on Siemens's solid financial backing.

And with nearly 600 employees in place, Unisphere is revving its networking engines, according to Martin Clague, the company's chief executive.

"Siemens couldn't get here as quickly without doing something like this," Clague said of his company. "They want this to work because it has to work."

Unisphere announced plans this week to aid the deployment of services based on digital subscriber line (DSL) technology for upstart service provider RMI.Net, formerly known as Rocky Mountain Internet. RMI.Net will install Unisphere's ERX series of network hardware, based on technology it acquired from Redstone.

Net ambitions
To create Unisphere, Siemens purchased Castle Networks, Redstone Communications, and Argon Networks in March in a $1.1 billion bid to invigorate its Internet equipment strategy and gain a foothold in the exploding North American market for equipment based on Internet protocol (IP).

The growth of the Internet has been a boon for a variety of industries, including the communications equipment manufacturers that provide the hardware and software that forms the flesh and blood of the world's networks.

The Internet has altered the strategies of multinational companies like Siemens, Alcatel, Nokia, and Ericsson, which have methodically purchased various equipment makers to enter a market dominated by North American-based firms such as Cisco Systems. These new strategies are an about-face for the companies, as they have long catered to traditional phone companies.

Some analysts think Siemens's strength in building phone networks and Unisphere's expertise in tapping into that hardware and software integration could be a key to the company's success as it introduces its own IP-based software for its switching and routing devices.

"Certainly, I think what they're doing right now with the overall branding is necessary to pull those acquisitions together into one house," said Chris Nicoll, director of infrastructure analysis for market watcher Current Analysis.

In the shadows
Others wonder about Siemens's influence as a "big company" possibly dominating the spirit of a start-up.

"It's not going to be easy to get Unisphere up on its feet," said Maria Zeppetella, analyst with industry consultants Probe Research. "They've got a major culture clash with Germany, of course."

"But if they can get their act together, there's a great opportunity," Zeppetella added.

Another key challenge could be the delayed introduction of a high-end switch and routing device from Argon Networks, slated to enter trials sometime next year. That device will allow the firm to offer a collection of technology that could be attractive for service providers.

But Argon was scheduled to test its equipment in the first half of this year, according to comments made before the company was acquired. The company missed that deadline, and some in the industry are raising doubts that the company's technology is even getting off the ground.

Clague admitted there have been software delays and said the company's technology is "still in the development stage." But he targeted late 2000 for delivery of Argon's device, to be called the CRX series.

"Our customers tell me they're going to experiment with a lot of stuff," Clague said. "I think the market's going to be big enough over the next five years."

The executive said he has made 55 customer visits as evidence of interest in Unisphere's technology.