Making Its Presence Felt

In the midst of an expected recovery from the slowdown, the global IT
scenario is undergoing major consolidation. This quarter is perhaps one of those
which saw a sudden spurt of mergers and acquisitions globally. With consecutive
news of Adobe acquiring Omniture, Dell acquiring Perot, and Xerox acquiring ACS,
the unified communications space also sees a major breakthrough. This time it is
Cisco that has made a recommended offer to acquire Norway based Tandberg for $3
bn. This acquisition will help Cisco expand its collaboration portfolio to offer
more solutions to its customers. What made this alliance possible was the
feedback from customers for both Ciscos and Tandbergs high-end collaborative
systems and solutions. Reflecting on the offer, Fredrik Halvorsen, CEO, Tandberg
believes that customers are adopting technologies across the board from high-end
telepresence to desktop and PC applications. The combination of two
organizations would even allow to innovate at a higher pace than the companies
working independently.

The combination of two organizations would even allow to innovate at a higher pace than the companies working independently Fredrik Halvorsen, CEO, Tandberg

According to the 2009 annual report of Cisco, sales of unified communications
products soared up by approximately $30 mn because of increased adoption of web
based collaborative tools. Considering this, the alliance with Tandberg will be
an added feather in the cap for Cisco to deliver web based collaborative tools
to its customers more efficiently. Another factor that could have possibly led
to this merger is the decrease in other product revenues in FY 09, compared
with FY 08, such as decline in the sales of cable, optical and service provider
video products, partially offset by increased sales of emerging technology
products such as telepresence. On the other hand, the 2008 annual report of
Tandberg suggests revenue growth of 18.9% for videoconferencing endpoints. The
market growth in terms of units sold was 8.5%. Add to it Tandbergs Telepresence
T3, a product that made it possible for anyone to join a telepresence meeting
using a standards-compliant video system, bridging the gap between
videoconferencing and telepresence. In a nutshell, this acquisition would see
Cisco leverage its financial strength through its build, buy, and partner
innovation framework.

A key macro transition of Ciscos businesses has been in increased usage of
video, collaborative tools, and data center, and virtualization. The acquisition
of Tandberg is positioned at the intersection of both video and collaboration.
Another key trend is the shift of consumers from traditional basic voice
communications to true multimedia experience. With this, Cisco will also
leverage on its already existing strong balance sheet. The way people
communicate and collaborate has completely changed. According to Tandberg,
innovation power of both the organizations will disrupt the collaborative
market.

Apart from being the market giants in telepresence and videoconferencing,
data storage has been another key vertical for both the organizations. However
the bad news for them in the last financial year was a weak balance sheet in
data storage solutions business. Tandberg Datas revenue for Q3 FY08 was $41 mn,
a decline of $8 mn compared to Q3 FY07. On the other hand, Ciscos storage area
networking products saw a dip in sales by approximately $85 mn because of lower
sales of MDS 9,000 product lines. This vertical could probably be the one where
both the companies would consolidate and build up product value in the long-run.

Despite such assumptions, it is still to be seen how far would this
acquisition affect Polycoms telepresence and videoconferencing business in
reality? Or is the company really up for the competition? With such alliances
following one after the other, the industry needs to figure out whether such
consolidations and M&As are leading the market to recovery? Or is it the other
way round, that the expected recovery from the slowdown is helping enterprises
to consolidate and leverage their existing businesses?

PC Suraj

surajp@cybermedia.co.in