Tech vendors prefer partnerships to buyouts

By Ritsuko Ando - Analysis

NEW YORK (Reuters) - Technology companies are riding out the recession by seeking sales partnerships, which offer some of the benefits as acquisitions without the risk of squandering cash in a weak economy or, for smaller firms, selling out at a low valuation.

For example, Juniper Networks Inc JNPR.O recently announced a joint venture with Nokia Siemens Networks to sell network equipment and better compete with Cisco Systems Inc (CSCO.O). Nokia Siemens is a 50-50 venture between Nokia (NOK1V.HE) and Siemens (SIEGn.DE).

Juniper is also in talks with IBM on a partnership similar to Big Blue's recent deal to resell routers and storage devices from Brocade Communications Systems Inc (BRCD.O), according to sources familiar with the talks.

"I don't think it's a coincidence at all," Signal Hill Capital analyst Erik Suppiger said of the recent flurry of deals. "The strategic element is what's driving it, and I think the economics are making it happen a little bit faster."

Big technology companies are vying to expand their product lines through these partnerships, and become one-stop shops for corporate data centers. Meanwhile, niche technology vendors want to team up with bigger sales forces and work with different distributors.

For example, Riverbed Technology Inc (RVBD.O), which specializes in technology that improves network speeds, has about 1,000 employees and competes with Cisco's team of more than 66,000 employees.

Riverbed Chief Executive Jerry M. Kennelly said linking arms with Hewlett-Packard Co (HPQ.N) and International Business Machines Corp helps it get through the doors of more corporate chief information officers.

"What you seek to become is a recognized leader taken in by the biggest partner on the distribution side," Kennelly said.

Partnerships can help companies expand without making acquisitions or investments in new technologies beyond their expertise, executives said.

"We're staying focused on what we do and what we do well," said Juniper Chief Executive Kevin Johnson. "I would expect us to continue to do more and more partnerships as a company."

TRIAL M&A

Some analysts said sales alliances may be a trial for future M&A deals. Oracle Corp's (ORCL.O) planned $7.1 billion acquisition of Sun Microsystems Inc (JAVA.O), and Broadcom Corp's (BRCM.O) $764 million hostile bid for Emulex Corp (ELX.N) show there is still pressure for consolidation.

"I would view partnerships out there as some of the initial steps toward more consolidation," Signal Hill's Suppiger said. "They're going to want to do a fair amount of partnering before they do a large acquisition because the risk of failure is very high."

The spate of recent deals is also in part a response to Cisco's decision to expand into the computer server market.

Cisco, which has broadened its product offering from routers and switches to software and consumer electronics, now competes directly with long-time partners HP and IBM. Those companies are, in turn, looking to rely less on Cisco by diversifying their partnerships, analysts said.