Private equity swoops on Siemens

Siemens is to sell a majority share of its enterprise communications business to an American private equity firm, the Gores Group, and will start a joint venture involving the business with its new partner.

Siemens is to sell a majority share of its enterprise communications business to an American private equity firm, the Gores Group, and will start a joint venture involving the business with its new partner.

Under the deal, announced yesterday, Gores will take a 51 per cent stake in Siemens Enterprise Communications (also known as SEN), which provides telecommunications hardware and software, such as switching equipment, for corporate customers. That business will be allied to two of Gores's portfolio companies: the network equipment and security supplier Enterasys, and the call-centre software maker SER Solutions.

"Combining the three companies will lead to a more complete enterprise networking and communications offering that will leverage Siemens Enterprise Communications's powerful distribution capabilities, global reach and extensive customer base," Gores Group founder Alec Gores said in a statement.

Siemens's chief financial officer, Joe Kaeser, said the joint venture would be "solidly financed". The partners intend to invest around €350m in the scheme, splitting the funding equally between them. "The investments will be made in order to launch innovative Siemens Enterprise Communications products on the market, acquire other technology platforms to capitalise on the powerful Siemens Enterprise Communications distribution organisation, and further drive the expansion and transition of the business from a hardware supplier to a software and service provider", Siemens said.

Gores Group will run the operational side of the joint venture, while SEN will continue to use the Siemens One sales network and be preferred supplier to Siemens. The German company was keen to reassure customers that key products such as OpenScape Unified Communications (UC) Server would remain an integral part of the portfolio on offer. Support and upgrades for SEN products such as HiPath 3000 and HiPath 4000 will also be continued for the long term, it said.

Gartner research vice president Bettina Tratz-Ryan told ZDNet.com.au sister site ZDNet.co.uk that the challenge would be "to maintain the Siemens brand and to continue with the restructuring of SEN, to be able to compete efficiently in the unified communications and contact centre field". The joint venture will go up against Cisco, Nortel and Alcatel-Lucent.

"The inclusion of Enterasys and SER improves their long-term viability as part of a larger company, and also [makes it possible] to extend [their] products to SEN's existing customers," Tratz-Ryan added. "SER has a complementary portfolio of outbound, voice response and content analytics to boost the lagging ProCenter product."

The SEN deal was made public one day before Siemens released its quarterly results. Those results showed a 13 per cent year-on-year rise in revenues to €9.2bn, along with a 26 per cent rise in orders. Net income was down year-on-year from €2.1bn to €1.4bn, but Siemens said this reflected last year's "substantial gain in discontinued operations" arising from the transfer of its carrier business into Nokia Siemens Networks.

Siemens chief executive and president Peter Loscher said that the company anticipated growth at twice the rate of global GDP for the fiscal year of 2009, despite "a less favourable macroeconomic situation".

Tratz-Ryan said the results were quite promising, especially in a very constrained global market environment. "It seems like Loscher's restructuring efforts have taken effect. There were some criticisms about reorganising the company in the way that has been done, but [Siemens is] seeing the fruit. All in all, it's a positive sign that Siemens is getting back on track," she said.

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