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Author: Jeremy Green, Dan Bieler
The newly founded Siemens Enterprise Communications GmbH & Co. KG held its first analyst conference in London on 17-18 October 2006. The event provided the opportunity to gain insights into how the new company wants to position itself. Enterprise Communications was formed through its carve out from the former Com division.
Comment: Enterprise Communications has undoubtedly made progress since we last saw them in May, prior to the Com break-up. Perhaps the most notable progress relates to the product portfolio development, especially the HiPath 8000. We do believe that Siemens is making the right moves to position itself as a provider of true IP business solutions. But we feel there could have been more progress regarding the formulation of a clearer marketing message. In our view a good story is being portrayed in too complex a manner.
We do like how Enterprise Communications aims to position itself. In particular, the goal to assist its clients to migrate towards an IP-based business environment, with all the knock-on effects on business processes, is more visionary than what we see from many competitors.
In the near term, Enterprise Communications sees itself primarily as an alternative to Cisco. Whereas Cisco remains a proprietary solution, Enterprise Communications aims for open systems. Whereas Cisco retains a hardware-heavy approach, Enterprise Communications views itself increasingly as a software house. Whereas Cisco follows a de-centralized strategy, Enterprise Communications embraces a centralized approach. This strategy should help Enterprise Communications to differentiate its offering from Alcatel, Avaya and Nortel. The flipside is that it potentially brings it closer on a collision course with Microsoft - and also with ICT divisions of telco providers.
Enterprise Communications has a good understanding of enterprise mobility requirements and some very attractive products aimed at this market. It has made some very sensible acquisitions to give it the capabilities it has needed; the purchase of Chantry, which has strengthened the HiPath portfolio through the addition of WLAN competence, is a good example of this. Moreover, an understanding of mobility pervades even the 'non-mobile' products. For example, the new OpenStage family of desktop phones support Bluetooth via 'car kit functionality' and allow users to pair their own mobiles - thereby enabling the mobile to be used as a cordless handset or headset.
Of central importance going forward must be the restructuring of the sales channels, in particular the indirect channels (e.g. telcos). Enterprise Communications will have to find ways to manage these changing relationships delicately, as many of these partners are also becoming closer competitors (e.g. T-Systems). Marketing must improve to deliver a clearer message what Enterprise Communications can achieve for its clients. This is particularly the case in the US and Asia, where Enterprise Communications still only has a low single-digit market share.
Perhaps the biggest challenge remains size.
Despite sales of about €3.5bn and 17,000 staff, Enterprise Services lacks some scale in our eyes, as several of its key competitors can leverage more resources. Although no financials were communicated, we estimate that the division is far from generating positive earnings. The lacklustre support by Siemens AG does not help. Without significant additional resources, especially in the areas of R&D and marketing, we remain unconvinced about the longevity of the story we were presented at the analyst day.
So does this mean we see no way forward for Enterprise Communications? No. We do see a way forward. But we believe that Enterprise Communications will have to think broad. Its declared aim is to strengthen the portfolio in data and applications as well as the geographic presence in the North American and APAC markets. We would argue for teaming up with an ambitious Asia-based competitor. Overlaps of key customer basis would be small, the issue of low cost manufacturing would be addressed and the product range would presumably stretch from simple hardware to complex SOA-type solutions. We can think of several Asian players that want to push into ICT services more.
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