Siemens launches phones amid worries over fraud probe

Siemas has been a global power, analyst said, but the fraud investigation doesn't help matters with a sale

Siemens Communications is announcing a sleek new line of desktop phones, but several analysts warned IT managers to be cautious buyers because the Siemens business unit that sells the gear could be sold and long-term support might become questionable.

Further, the possible sale of all or part of Siemens' interest in the business unit may be tainted by an ongoing criminal investigation into fraud allegations involving several Siemens employees in Germany, those analysts said last week. The employees allegedly skimmed more than US$250 million from Siemens to give to companies outside Germany so they would buy Siemens communication products, according to a Siemens spokesman and German newspaper accounts.

"The Siemens product is good, but any buyer should use savvy, since the future of Siemens is so shaky," said Nora Freedman, an analyst at IDC. "It smells."

Munich-based Siemens AG, the parent company of Siemens Communications, issued a statement Nov. 17 saying it is cooperating with German investigators and has begun an internal audit of its subsidiary's financial compliance system. Siemens spokesman Andreas Schwab said that as many as 10 former and current Siemens communications workers and two outsiders are alleged to have siphoned off at least US$26 million.

About 200 investigators searched 30 Siemens locations in Munich and Erlangen on Nov. 15 under the direction of the Munich Department of Public Prosecution, he said. Investigators conducted the searches after receiving a detailed anonymous complaint in 2005.

Even though analysts said buyers should scrutinize the Siemens business as much as the new OpenStage phone technology, two IT managers said they are planning to test or deploy the phones when they begin shipping in January. Pricing starts at US$295 for the low-end phones. Pricing for the others was not released.

The phones use Session Initiation Protocol technology to integrate wired, wireless and IP communications for desktop call management, push-to-conference functionality and the ability to determine whether co-workers are present, among other features, said Al Baker, U.S. vice president of product and service management at Siemens Communications. A new TouchGuide wheel on the front of each phone somewhat mimics the scroll wheel on iPod music players and offers access to a menu-driven user interface.

Bill Crane, communications manager at Shimano, a bicycle maker in California, said the OpenStage phones "appear to be user-friendly, but until you use them, you're not sure." Having user-friendly phones for 150 employees will save time for users and IT staff, he said. "We spend a lot of time telling people the same things on how to use something, so it helps to have them kind of figure it out."

Crane said he isn't worried about a possible sale of the Siemens unit and such a deal's impact on future support or phone sales. As for the fraud investigation, Crane added that what is alleged to have happened "sounds kind of dumb.... I'd be more concerned about the stupidity of the people involved than its impact on the company's future."

Shimano has been a Siemens customer for 10 years.

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Another longtime Siemens customer, America-Mideast Educational & Training Services in Washington, will deploy 40 of the new phones next month, said Ugur Usumi, director of information technologies at the training company. Siemens had the most reliable technology when America-Mideast evaluated voice over IP systems and unified messaging applications several years ago.

"It is good to see that a company as large as Siemens can adapt to changes quickly," he said.

Usumi said the fraud investigation probably won't influence his future decisions about whether to buy from Siemens. But a possible sale of the Siemens business unit "might" influence him.

A Siemens spokeswoman, Monika Brucklmeier, confirmed last month that talks are continuing with several interested groups to sell the company's unprofitable Siemens Enterprise Networks subsidiary. The unit employs 17,000 people in 80 countries and is called Siemens Communications in the U.S. Jacob Rice, a spokesman for Siemens Communications, said the process for determining what happens to the unit is "open-ended" and could result in creation of a partnership where Siemens has a minority interest.

No one at Siemens would confirm reports that talks had collapsed with two buyout companies. But Freedman and other analysts said those reports cast a negative light on sale prospects.

"They're not inspiring much confidence," she said, adding that IT managers should weigh what might happen to any company they are considering purchasing from. "IT wants to extend the life of a network as long as possible, but with Siemens Enterprise Communications relatively unstable, how do you guarantee it will be Siemens Enterprise for three or six months?"

Freedman also said the new phones, while adding "bling" to a user's desktop, do not contain features that distinguish them much from the IP phones of competitors such as Cisco Systems, Avaya and Nortel Networks.

"Selling the company is made harder with the [fraud] investigation," said Zeus Kerravala, an analyst at Yankee Group Research in Boston. As a result, he too urged IT managers to go slow when buying Siemens products. He still believes, however, that Siemens generally has good technology.

Another analyst, Allan Sulkin of TEQConsult Group, said "There's always some risk to IT buyers" when a sale of the vendor is under way. "You will know where Siemens is today, but won't know in two to three years, so end users do have to take that into account."

Siemens remains a strong player in communications products and is second behind Avaya in total enterprise voice shipments globally, Sulkin said. Siemens also offers direct sales and service in more countries, a total of 78, than any other vendor. "They've been a global power," he added. "But the fraud investigation doesn't help matters [with a sale]."

The analysts said Siemens AG is hoping to avoid with its communications unit what happened last year when it tried to sell its unprofitable mobile phone manufacturing unit and ended up giving Taiwan's BenQ Corp. US$322 million to take control of the unit. In September, BenQ Mobile filed for bankruptcy protection in Germany after its Taiwanese parent decided to stop investing in the money-losing operation.

The IDG News Service contributed to this story.