By Stephen Phillips & William Fellows
The European IT landscape changed for good yesterday when Siemens AG, the last remaining major vendor, tossed its computer systems business into a joint venture with Fujitsu Ltd which will merge the two companies’ European operations. The 50%-50% owned Fujitsu Siemens Computers will be the third-largest European vendor by revenue and the second behind Compaq in terms of unit shipments.
The two say the thrust of their venture, which has been secretly agreed since March, is to drive the two companies to third place in the global computer market. Combined, Fujitsu and Siemens’ sales currently place the joint venture fifth globally behind IBM, Compaq, Hewlett-Packard and Dell.
Executives said, despite their global ambitions, they had not put the joint venture itself on a global footing because of compensation payments this would have incurred. But they added that the joint venture would include worldwide development opportunities for certain products. What they mean is that the venture would be competing with itself and with other Fujitsu holdings in many areas outside Europe if it were taken global.
Siemens and Fujitsu have worked together for more than 20 years and for Siemens it is a neat way of unburdening itself from an ailing computer systems business. Siemens has never got to grips with the old Nixdorf business it bought in the late 1980s and is pretty obviously overstaffed. Siemens gives Fujitsu an opportunity to own IT in Europe, and is its second major landfall there following the acquisition of UK supplier ICL Plc six years ago. Consolidating the two businesses in Europe provides the opportunity to create a cost-efficient and competitive PC enterprise.
The companies didn’t say whether the agreement contains a clause which would enable Fujitsu to buy out Siemens’ half at an agreed price once the business achieves a specified revenue level. This would give Siemens a graceful way of exiting computer manufacturing without causing huge political reactions at home.
Siemens Computer Systems division has annual revenues of $4.12bn and roughly 8,000 employees. Sales outside Europe account for a lowly 8%, or $320m, of overall revenue. Fujitsu Computers (Europe) Ltd has annual revenues of $2.06bn and 1,600 employees. Revenues for the 2000 fiscal year are projected to top $7.85bn, with unit shipments expected to include 4.8 million PCs, 180,000 Intel servers and 5,000 enterprise-level Unix servers. Redundancies and the consolidation of overlapping product lines won’t be addressed ahead of a formal statement of the company’s business plan, slated for October 1.
Siemens’ US computer systems business, which has around 110 employees, will become a local Fujitsu operation. It won’t be known for 60 days how many jobs will be lost or to where the former Siemens staff will report. The company says it has yet to be decided which Fujitsu group will own its US computer business.
Fujitsu’s Amdahl mainframe unit is unaffected except that its business it now certain to come under the spotlight with the falling price of mainframe MIPS and increased competition from Unix server vendors.
Siemens bought out Pyramid Technology for $193m in 1995 to bolster its bid for the enterprise market. Three years later, Siemens decided to ditch Pyramid’s MIPS RISC architecture in favor of Intel chips, which it is now using across its entire PC-to-mainframe line, and dump Pyramid’s Reliant Unix in favor of Sun Microsystems Inc’s Solaris. This is, of course, where Siemens and Fujitsu have common ground. Both are committed to using Solaris on their Intel IA-64 systems while Fujitsu already sells OEM-ed and home-grown Solaris-based servers and has a ongoing commitment to Sun’s Sparc RISC. The deal is a big win for Sun. Siemens said it would continue introducing e-commerce procurement for its key Unix and mainframe server enterprise clients under the new company.
Economies of scale will shrink research and development costs, particularly for consumer PCs, although development of high-end servers is a priority, said executives. We are working on the assumption of beautiful black figures, said one spokesman.
Philippe Schmitt, telecoms sector director at ABN AMRO Securities in Paris said, Siemens had to do something quickly with a significant player to compete with Compaq and Dell. But there are lots of issues with the deal yet to be addressed.
Controversially, the new company’s headquarters will probably be in the Netherlands, although this is subject to confirmation in October. The Paderborne-based company insisted the headquarters would have few staff and the location was not any comment on its company’s commitment to Germany.
The deal excludes both companies’ services wings, Fujitsu’s ICL and Siemens Business Services, which will continue as direct competitors in the outsourcing market.
Executives ruled out direct selling of PCs, saying there were no immediate plans to emulate Dell’s successful model of selling over the phone or web. Indirect sales channels via corporate resellers provide the best success, executives claim, adding that a different model requires time and effort and would create insecurity for sales partners. Direct selling will make it hard for the new company to compete in the US, where it says it has great ambitions and which it will need to crack if it is to stand a chance of actually becoming the world’s third-largest vendor. While difficult to set up – witness Compaq’s pain – direct selling is an undisputed way to reduce costs.
