If Europe's big three telco equipment suppliers want to sell to the increasingly data voracious world they will have to be more aggressive in the race to acquire innovative technologies.
That is the opinion of US analysts after French giant Alcatel this week made its first US takeover in the IP arena. The company is to pay $315 million in cash for Packet Engines, one of the last remaining independent Gigabit Ethernet startups.
Analysts hail the Packet Engines deal as an harbinger of takeovers to ensure Europe's major equipment suppliers, Alcatel, Siemens and Ericsson, do not fall behind their north American counterparts.
Although the move was praised by analysts they warned that Alcatel still has gaps in its IP product portfolio, as does Siemens and Ericsson, when compared to their acquisitive rivals Lucent, the newly-named Nortel Networks, and Cisco.
Michael Howard, of research company Infonetics, said Alcatel had better keep moving quickly. "I expect Siemens and Ericsson to also play the takeover game or be in danger of being left behind,? he predicted.
Alcatel was several months later than its big north American rivals in acquiring Gigabit Ethernet technology. Cisco, Nortel, Lucent and Cabletron bought Granite Systems, Rapid City, Prominent and Yago, respectively, while 3Com is taking the homegrown route.
Coincidentally on the same day Alcatel announced its acquisition, Ericsson proclaimed it was charting a "new course" with a strategic direction that its chief executive, Sven-Christer Nilsson, said included a "string of pearls" acquisitions policy (Newswire 14 October).
Ericsson said its new direction was driven in part by the convergence of telecomms and datacomms creating high demand for IP technology. To address this Ericsson has reorganized its business into three customer segments: operators and service providers, enterprises and consumers.
Signalling the importance of this approach, Ericsson has made Lennart Grabe, a senior vice president, responsible for developing the company?s mergers and acquisitions activities.
Ericsson's one takeover this year was Newbridge Networks? remote access and internetworking interest, Advanced Computer Communication (ACC). Ericcson said it would integrate ACC's products with IP offerings it would either develop or acquire.
In addition Ericsson has acquired minority interests in ATM access product provider Mariposa, and is one of several four per cent stakeholders in WAN router start-up Juniper Networks. Its other IP offerings are homegrown or come from partnerships.
Diversifed German giant Siemens has been totally absent from the takeover scene in both sides of the communications arena. A the beginning of October, it reorganised in the US to create Siemens information and communication networks, to "meet the communications needs of enterprise and public network service provider customers". Within that are two divisions that tout IP solutions: one sells them to carriers and the other to corporations.
Earlier this year Siemens realised it needed access to new and innovative technologies and did what several other companies have done - it set up its own venture capital fund.
The trend for big vendors to drip-feed cash to startups in the hope that they will get first crack at any innovative technology is burgeoning in the US. AT&T, Intel and Cisco all have large portfolios and other companies are trying to emulate them.
Siemens created its Mustang Fund with $300 million to invest over the next three years, targeting technologies including IP data networking, optical wireless broadband, plus network management software applications.
A spokesman for the company this week said no Mustang investments had yet been announced, but commented: "We are always looking for strategic investments and technology partnerships."
One investment that Siemens announced earlier in the year was that it too was among the companies taking a slice of Juniper, alongside Ericsson, Lucent, 3Com and others. It also has a minority stake in Com21, a cable modem company that went public earlier this year, and Floware, an Israeli company developing wireless access solution for wideband applications.
Infonetics analyst Michael Howard, believes the big companies have no option but to continue buying smaller firms. "You simply cannot innovate as quickly or be as focused in a big company as you can in a small start-up," he said.
That leaves the European trio way behind their US rivals. Cisco is averaging a takeover almost every month and Nortel is making an investment a month. Nortel's chief executive John Roth said those investments are large enough that if it wanted the company could move quickly and acquire 100 per cent of the equity. Lucent has made approximately 12 takeovers in the two years since its spin-off from AT&T.
One thing which separates Alcatel?s acquisition of Packet Engines from other similar moves is that it will enable the company to operate autonomously and keep its name. "If companies are assimilated too quickly you could easily stifle innovation," said David Passmore, an analyst with research firm Net Reference. "What they want to do is continue to promote that entrepreneurial spirit."
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