Juniper Networks is to acquire Siemens's Unisphere Networks unit for $740m.
Analysts welcomed the deal - set to be finalised in the summer - saying that US-based Unisphere's specialised edge routers would enable Juniper to push into a new market.
Jay Pultz, research director at Gartner, said: "Juniper has been doing well in the high-end router space but it is a market that is tending to slow down.
"There is a compelling argument that growth and spending in service provider networks will in future come in the edge equipment market," said
Under the terms of the deal, privately held Unisphere will receive $375m in cash and $365m in Juniper stock. That will leave Siemens holding slightly less than 10 per cent of Juniper.
The two companies said they would work together in the IP infrastructure arena.
Siemens said it would use its sales channels and service provider contacts in 190 countries to offer Juniper's Internet equipment.
"Juniper is well represented in the US market but Siemens should be useful in helping them sell internationally," said Pultz.
After experiencing phenomenal growth with key high-end backbone routers, Juniper has recently seen networking rival Cisco Systems start to claw back its share in the market for high-end routers.
Juniper saw its worldwide market share slip to 21 per cent from 25 per cent during the first quarter of 2002, according to a recent study from the Dell'Oro Group. Over the same period Cisco managed to grow its share to 73 per cent.
Analysts say the Unisphere acquisition will not extend Juniper enough to compete head to head with Cisco in all markets, but that it would give the company a chance to compete in a still-emerging market that has yet to solidify around any one technology or company's offering.
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