Enterasys users should welcome Siemens deal -- for now, analysts say

Longer-term issues on market penetration, Cisco alternative will come

Enterasys Networks customers should be encouraged that the joint venture between Enterasys owner Gores Group and Siemens strengthens the vendor's product portfolio and financial wherewithal.

Gores and Siemens this week entered into a joint venture in which Gores acquired a controlling stake in Enterprise Communications group, the No. 4 vendor in VoIP equipment worldwide, according to Dell'Oro Group. Gores plans to combine Enterasys and its SER Systems call-center company with Siemens Enterprise Communications to form a $5 billion provider of VoIP systems and Ethernet switches for enterprises.

The joint venture should present a more formidable challenge to Cisco's enterprise dominance and satisfy Enterasys' stated goal of more than doubling in size to become a more credible alternative to the networking giant.

Existing Enterasys users should be heartened by the plan, says Rob Whiteley of Forrester Research.

"I think Enterasys customers should be thrilled," Whiteley says. "Enterasys was taken private [in 2006] and has pretty much remained silent for quite a long time. Given some of the financial viability concerns, I think a lot of current customers wanted any sign that there was light at the end of the Gores Group tunnel. Siemens provides the brand, some cash and a promise for a more stable revenue stream," he says.

"I don't really see any problem for customers," says Steve Schuchart of Current Analysis. "If anything, it means that Gores is more committed to Enterasys than ever. They kind of need [Enterasys] to make the whole thing work," he says.

Zeus Kerravala of The Yankee Group also believes Enterasys customers should be encouraged by the deal. There is always the potential for downside, however, he notes. Siemens has a professional services group that does a significant amount of business with Cisco and Cisco customers, he says. Also, Siemens' HiPath and OpenScape IP telephony systems most likely ride on Cisco networks.

"Siemens has got to be careful how much they position Enterasys as part of the [VoIP] solution," Kerravala says. "That could be a deterrent" for enterprises heavily entrenched in Cisco infrastructure, he says.

Forrester's Whiteley says the joint venture's challenge will come in convincing new customers to adopt its vision and products.

"It's the prospective customers that worry me," Whiteley says. "How does this marriage make any sense for them? There's no product-portfolio advantage; and Cisco, Alcatel-Lucent, 3Com, Nortel[with Microsoft] and even HP ProCurve [with partners] offer good switch plus [unified communications] solutions. I'm not even sure there's a financial angle as many of the other vendors can simply respond with deeper discounts if they feel the competitive pressure."

The true test for the joint venture will be long-term, when new products are spun from the union, Current Analysis' Schuchart says. That's when the biggest questions concerning viability and credibility as a Cisco alternative emerge as well.

"The real question is, what kind of joint products can they come up with down the road?" Schuchart says. "And will those products be a significant market threat? The potential for changing the market comes down the road." he says.

"I think this is just another move in the industry to consolidate power. Being a 'strong alternative to Cisco' now means you need to have a pretty broad portfolio. But combining switching with communications solutions does not feel like it will shake anything up," Whiteley adds.

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