Siemens Is Shaping Up

MUNICH -- Siemens AG (NYSE: SI; Frankfurt: SIE) is getting its act together on optical networking at last, judging by its performance at an international press briefing held here yesterday.

On the one hand, Thomas Ganswindt, Group President of Siemens Information Communications Networks (ICN) says he's making progress towards putting ICN’s house in order and returning it to profitability.

Siemens is also readying a family of multiservice provisioning platforms, the Surpass hiT (pronounced "high tee") series, for official launch at next month’s CeBIT show in Germany. Siemens is banking on these boxes becoming big sellers.

Ganswindt took control of ICN in September 2001 after turning around another Siemens division (transportation) in double quick time. He's tasked with doing the same thing with ICN, which raked in revenues of €9.6 billion (US$10.4 billion) in fiscal 2002 -- a sizeable chunk of Siemens's huge empire.

If Ganswindt succeeds -- and that's a big if -- he could enhance his chances of heading up the whole Siemens shooting match when the current CEO, Heinrich von Pierer, retires at the end of 2004.

Ganswindt says ICN is close to completing a “cleanup” phase, which has seen it cut costs by €1.8 billion and reduce headcount from 54,000 to 37,600 at the end of 2002. Further cuts are planned, to bring the headcount down to 34,000 next September.

In the past, analysts have questioned whether this would be enough, noting that Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) have shed even greater numbers of staff and axed whole product lines (see Siemens Restructures ICN).

Ganswindt, however, maintains that ICN won't back out of markets and says it's already responding to treatment. He cites a book-to-bill ratio that has risen above parity (1-to-1) as proof that Siemens has beaten its order backlog; he says cash flow has improved by 130 percent. He thinks ICN is on track to reach positive EBIT (earnings before interest and taxation) next year.

"We'll see a turnaround and break-even of our U.S. business very soon," he predicts -- quite a change from the bleak picture painted a year ago (see Siemens ICN Chief Takes Leave).

Siemens ICN is now in a "rebuild phase," according to Ganswindt. Much of this is based on developing a portfolio of winning products, and Siemens's Surpass hiT platforms form a key part of this.

The hiT boxes combine a lot of technologies -- Wavelength Division Multiplexing (WDM), next-generation SDH, Gigabit Ethernet, Resilient Packet Ring (RPR), Multiprotocol Label Switching (MPLS), and storage networking interfaces. Their real benefit is in enabling service providers to keep their options open on how much of their SDH infrastructure is optimized for carrying packet-based traffic such as Internet Protocol (IP) and Ethernet, and how much of it carries TDM traffic such as voice and leased lines.

One of the key enabling technologies for this is RPR, which enables service providers to create rings within metros that can be used for a variety of applications. One application could be linking DSLAMs (DSL access multiplexers) to B-RASs (broadband remote access servers). Another could be creating optical backbones in place of core router backbones, according to Matthias Lahr, senior VP of technical sales support for Siemens ICN.

Whether these are appropriate applications for RPR rings in Europe is challenged by Nortel, whose Optera 3500 box is similar to Siemens's hiT, though it's based on Sonet rather than on SDH. Nortel doesn't consider RPR rings appropriate for carrier infrastructure in Europe, according to Geoff Spencer, Nortel's product manager for optical Ethernet metro products.

Spencer says Nortel is targeting enterprise applications for the 3500. In some cases, corporations buy the Optera 3500s themselves and install their own rings using leased Sonet (Synchronous Optical NETwork) and SDH (Synchronous Digital Hierarchy) circuits. In other cases, the carrier runs the network, but it's a network built specifically for that customer. This is the application behind the big order for RPR equipment that AT&T Corp. (NYSE: T) recently placed with Nortel (see Who Knew? Big Carriers Like RPR).

Spencer also has strong arguments against proposing Gigabit Ethernet and RPR rings for linking DSLAMs to B-RASs. A lot of existing DSLAMs don't have Gigabit Ethernet interfaces, he says. Even more importantly, carriers have already installed lots of Asynchronous Transfer Mode (ATM) equipment between DSLAMs and B-RASs, and they don't want to rip it out.

The good news for Siemens is that demand for boxes supporting RPR appears to be healthy, in spite of the issue of what they're likely to be used for. Sales of pre-standard RPR equipment -- mainly from Nortel and Cisco Systems Inc. -- totaled more than $100 million in 2002, according to Michael Howard, principal analyst and founder of Infonetics Research Inc. In a survey of 20 major carriers conducted by Infonetics, 25 percent said they expected to have pre-standard RPR in their networks by the end of 2003, and 19 percent said they expected to have standards-compliant RPR by then.

— Peter Heywood, Founding Editor, Light Reading
Peter Heywood 12/5/2012 | 12:41:37 AM
re: Siemens Is Shaping Up The following post on Siemens' stock talk, entitled "Siemens Optical in US disbanded", makes interesting reading:

sidepipes 12/5/2012 | 12:41:28 AM
re: Siemens Is Shaping Up "One of the key enabling technologies for this is RPR, which enables service providers to create rings within metros that can be used for a variety of applications."

Isn't this "Clinton Talk" for requiring a greenfield installation?

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