Tech vendors prefer partnerships to buyouts

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.

For its part, Cisco has played down the increasing rivalry and says "coopetition" is necessary to meet customer's evolving demands. The company has also teamed up with data storage equipment maker EMC Corp (EMC.N).

Cisco CEO John Chambers said last month the server market was crucial to build more advanced data centers, even if it meant competing with partners.

"HP is clearly going to be a competitor. We'll give them a good run," Chambers said. "IBM, the relationship is very good... I would be surprised if you don't see us partner most of the time and compete periodically."

Executives say a decline in technology budgets, with U.S. companies cutting technology spending by around 10 to 20 percent, is another crucial driver of sales alliances.

"Everybody's looking to make sure they're partnered up with the right players to ensure that as the market comes back they have the breadth of solutions and capability and coverage to capitalize on the return to growth in the sector," said Todd Abbott, president of field operations at Avaya Inc, which sells hardware and software for Web-based phone networks.

(Reporting by Ritsuko Ando, editing by Tiffany Wu and Derek Caney)