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Newbridge buy could shut out Siemens, 3Com

Phone equipment maker Alcatel's $7.1 billion deal for Newbridge Networks could signal the end of two high-profile alliances Newbridge has with Siemens and 3Com.

Alcatel's $7.1 billion deal for Newbridge Networks today could signal the end of two high-profile alliances Newbridge has with Siemens and 3Com.

Newbridge, a Canadian network equipment maker, sells about 20 percent of its technology through a partnership with Siemens, a German-based phone equipment maker that competes with Alcatel.

Networking firm 3Com has also relied on both Newbridge and Siemens to fill huge holes in its high-end strategy for telecommunications carriers and Internet service providers (ISP). But 3Com also sells some data networking equipment that competes with Alcatel.

This tangled web of "co-opetition" is indicative of the fast-moving networking market, in which some players--such as 3Com--find it necessary to rely on third parties for some of their technology needs.

French phone equipment maker Alcatel acquired Newbridge today in a stock deal, and executives from both companies say the Siemens relationship is important and they expect it to continue with "no disruptions."

"We want to make sure this situation remains the same, and the feedback we got from Siemens is that they want to maintain the relationship," said Alcatel chief technology officer Martin De Prycker. "We did not talk in detail with them, but obviously they need Newbridge because their customers need the (Newbridge) products for expansion--and they need the same products."

But Siemens isn't as sure, leaving their four-year alliance in doubt.

"We have had a very strong relationship with Newbridge. This is a new situation, and it is not possible at this junction to make definitive statements on the continuation of our partnership," said Siemens spokesman Reiner Schoenrock.

Analysts say Alcatel's acquisition today could spell the death knell of the alliances both once had with Newbridge.

"These market contractions lead to strange bedfellows," said analyst Jeremy Duke, of market research firm Synergy Research Group. "The Siemens deal, at some point, will dwindle down to zero."

Siemens resells Newbridge's asynchronous transfer mode (ATM) switches, which sends voice and data signals over networks at high speeds. Siemens combines its phone equipment with Newbridge's data equipment to build high-speed networks for telecommunications carriers and ISPs.

Duke said he can't foresee Siemens wanting to buy equipment from a rival in the lucrative, but crowded communications equipment market, where Cisco Systems, Nortel Networks and Lucent Technologies also compete.

Others agree. "I imagine Siemens doesn't want to buy equipment from Alcatel, but the reality is they'll have to slowly wean themselves from Newbridge eqiupment," said analyst Michael Howard, founder of Infonetics Research, an industry market research firm.

The 3Com relationship is more muddled and could be another casualty, Duke said. In a deal struck in 1998, 3Com said it would resell Newbridge's ATM technology, while Newbridge would resell 3Com's line of network switches.

3Com executives could not be reached for comment. A Newbridge spokesman said the company has a symbiotic relationship with 3Com, and while there may be areas that the companies compete, Newbridge doesn't expect any existing relationships to change.

Howard said 3Com is in an awkward situation. Not only do 3Com and Alcatel compete in data networking equipment, 3Com has close ties with Siemens, where they jointly sell each other's products.

Newbridge doesn't need its relationship with 3Com for network switches because it has access to Alcatel's technology, according to Howard. Alcatel gained the data networking gear from their acquisitions of Xylan and Packet Engines.

Alcatel's De Prycker said Newbridge's relationship with 3Com has not resulted in huge sales for either company. "3Com is not considered a big channel for us. It's been fairly limited," he said. "We are selling some products, but we currently have a limited relationship."

Alcatel is the third phone equipment maker in the last 18 months to buy a networking firm. Previously, Nortel bought data networking firm Bay Networks, while Lucent acquired networking firm Ascend Communications.