Technology companies are riding out the recession by seeking sales partnerships, which offer some of the benefits of 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 recently announced a joint venture with Nokia Siemens Networks to sell network equipment and better compete with Cisco Systems. Nokia Siemens is a 50-50 venture between Nokia and Siemens. Juniper is also in talks with International Business Machines on a partnership similar to Big Blue's recent deal to resell routers and storage devices from Brocade Communications Systems, according to sources familiar with the talks.
"I don't think it's a coincidence at all," Erik Suppiger, an analyst at Signal Hill Capital, said of the recent flurry of such 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 centres. Meanwhile, niche technology vendors want to team up with bigger sales forces and work with different distributors.
For example, Riverbed Technology, which specialises in technology that improves network speeds, has about 1,000 employees and competes with Cisco's team of 66,000 employees.
Jerry M Kennelly, Chief Executive, Riverbed, said linking arms with Hewlett-Packard and International Business Machines helps it get through the doors of more corporate chief information officers. "What you seek to become is a recognised leader taken in by the biggest partner on the distribution side," he said.
Partnerships can help companies expand without making acquisitions or investments in new technologies beyond their expertise, said executives. "We're staying focused on what we do and what we do well," said Kevin Johnson, CEO, Juniper. "I would expect us to continue to do more and more partnerships as a company."
Some analysts said sales alliances may be a trial for future M&A deals. Oracle's planned $7.1 billion (Dh26bn) acquisition of Sun Microsystems, and Broadcom's $764 million hostile bid for Emulex show there is still pressure for consolidation.
"I would view partnerships out there as some of the initial steps toward more consolidation," said Suppiger. "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, said analysts.
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. isco 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," said Chambers.
"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 US companies cutting technology spending by about 10 to 20 per cent, 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 coverage to capitalise on the return to growth in the sector," said Todd Abbott, President of Field Operations at Avaya, which sells hardware and software for web-based phone networks.
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