Fujitsu integrates switch and transport operations
Responding to customer demands for end-to-end, turnkey network solutions, the Japanese $36-billion global technology enterprise Fujitsu Ltd. is merging the operations of its U.S. switching and transmission subsidiaries serving the telecommunications market. Its goal is to provide increased system integration of the company`s fiber-optic, asynchronous transfer mode, or ATM, broadband switching and synchronous optical network, or Sonet, transport platforms.
Fujitsu Network Transmission Systems Inc., Richardson, TX, a leading supplier of fiber-optic transport platforms for delivering voice, video and data services, is joining Fujitsu Network Switching of America Inc., Raleigh, NC, a leading developer of broadcast switching platforms. The merger is expected to be completed by mid-1996.
Ryoichi Sugioka, chairman and chief executive of the new company, Fujitsu Network Communications, says, "Customers` stated desire for a single point of contact for all their broadband switching and transmission needs is the primary reason for the merger, which will enable a $1-billion company in 1997. It will allow us to better coordinate the introduction of new products and features that our customers in North America need to generate new revenues and reduce operating costs."
In North America, Fujitsu customers include local exchange carriers, interexchange carriers, competitive access providers, cable-TV operators and large private network providers.
Industry analysts consider Fujitsu and Lucent Technologies (formerly AT&T) the two leading suppliers of Sonet-based fiber-optic networks and equipment to telephone companies in the United States. They see the consolidation as a move by Fujitsu to solidify its premier position in the expanding broadband network market.
Michael Arellano, associate director of worldwide equipment markets for Northern Business Information, a New York City market research company, forecasts, "The broadband network market in North America is expected to approach $5 billion by 1999."
He adds that "local and long-distance telephone companies and cable-TV operators are increasingly expecting turnkey solutions and extensive systems integration support from equipment vendors because they do not have sufficient operations staffs to handle all the planning, design and engineering tasks. This merger makes Fujitsu one of a few suppliers in the United States that can provide a total broadband network solution."
Mark Lutkowitz, president of Trans-Formation Inc., a transmission equipment market consultancy in Birmingham, AL, says, "The merging of Fujitsu`s switching and transmission subsidiaries is symbolic of the complementary nature of ATM and Sonet technologies. The former is used as the switch and service provisioning vehicle, and the latter is used for network transport. However, it is likely that consolidation is occurring simply as a cost-reduction measure.
"Fujitsu might be anticipating that it will not get a sufficient amount of ATM business to justify the operation of separate production facilities. Moreover, the integration between switching and transmission departments at telephone companies will gradually become a reality because of operations advantages. It will mean suppliers will find it increasingly useful to market ATM and Sonet products together."
Meeting customer needs
To improve competitiveness, Fujitsu Network Communications is attempting to align or mirror its organization with its customers. Explains George Chase, Fujitsu senior vice president of sales and marketing, "For the Bell companies, we have historically had two separate lines of businesses--switch and transmission--because they had two separate organizations. We don`t find that to be the case anymore.
"The telephone people who make the switch and buy decisions are now also the people who engineer and buy the transmission part of the network. So we were encouraged to change how we did business in the past and to merge our switch and transport organizations. At the same time, we see benefits in doing that, especially in eliminating the duplication of new products."
Ron Martin, Fujitsu senior vice president of planning and development, comments, "We are generally recognized as the leader in supplying Sonet transmission equipment, both in market share and in revenue production. However, we have been excluded from participating in certain markets. Potential customers did not view us as a systems integrator or as an end-to-end turnkey supplier that can provide all the pieces of the network from the switch all the way to the customer premises. We missed some market potential that we otherwise could have had. Now, we intend to leverage the combined strengths of the two companies and go after that piece of the market."
The decision to merge is also a reaction to the downsizing underway in the telecommunications industry, in general, and by Lucent Technologies and the Bell operating companies, in particular. Martin says, "The people they are getting rid of have more than 20 years of experience in building and maintaining telephone networks. As a result, our customers no longer have that expertise in-house.
"Before, they were willing to buy all the network pieces from different suppliers to take advantage of prices and technologies. They now want tightly integrated networks because it`s easier to manage a network that comes from one vendor. We are trying to respond to that buying preference."
Because Fujitsu`s customers will now have a joint-engineering function that handles both switching and transmission, the company is going to assign a vice president of sales to each major account. This person will be responsible for selling both Fujitsu switching and transmission products and for tightly integrating the company`s product sales strategy to the customer.
Moreover, the company is planning to integrate more tightly its product planning functions to maximize resources and focus products to meet customer needs. Says Chase, "We see a merging of Sonet transmission and ATM switching technologies, and we want to be positioned to take care of that."
According to Donald Dittberner, president of Dittberner Associates Inc., a telecommunications market consultancy in Bethesda, MD, "Fujitsu is moving in the same direction as the other world-class telecommunications suppliers in aligning their corporate structures not toward product divisions, but toward customer groupings. To a large extent, this has already been done by Lucent Technologies, Northern Telecom and Alcatel. However, Fujitsu has not announced any further division of the company by specific North American customer groups, such as telecommunication carriers, cable-TV operators and private network customers. This would appear to be a likely direction for Fujitsu if it has continued success in the U.S. broadband network marketplace.
"Further, Fujitsu has recognized that access systems are becoming the major new growth market and that these access systems combine both switching and transmission technologies. It should focus more development attention to access systems and should eventually move into wireless access systems. Its lack of active participation in the wireless marketplace may prove a hindrance to maintaining market share in North America."
Primary product goals
As a key priority of the merged company, Martin says, "We are going to develop a common network management platform that will manage both the ATM core switch--and all of the legacy network management and billing systems that it deals with in its world--and network management for the Sonet transport and access products.
"Furthermore, we have been pursuing separate development tracks in terms of products that would find their way into the edge or periphery of the network, where you might find a node switch or a Sonet transport element. We are going to combine those features into a single common product or maybe a family of similar products. These products will address both the ATM switch and Sonet transport markets."
In addition, Fujitsu`s customers will soon be able to take advantage of some product commonalities that don`t exist today. For example, Fujitsu has a group of Sonet transmission product interfaces that are not interchangeable with its ATM switches. In particular, the ATM switch and Sonet interface does not accommodate the data communications channel, which is handled by the Sonet transmission products.
As to the effects of the merger on personnel, Chase claims "there won`t be a change in people. There will be a change in management structure in how people report. But for the most part, people are going to remain."
The new company headquarters will be in Richardson, TX, where Fujitsu Network Transmission Systems has been based since 1990. The Fujitsu Network Switching facilities in Raleigh will continue to operate as the switching development center. Fujitsu is expected to continue operating its transmission development centers in Richardson and San Jose, CA. Transmission and switching system manufacturing is slated for both Richardson and Oyama, Japan. q