Hitachi and NEC embark on networking joint venture

Hitachi and NEC plan to form a joint venture company in October that will produce network routers and switches for corporations...

Hitachi and NEC plan to form a joint venture company in October that will produce network routers and switches for corporations and telecommunications carriers.

The joint venture, which has yet to be named, will supply backbone routers and switches to Hitachi and NEC for the two companies to sell on to their own customers, said Isao Ono, executive vice-president of Hitachi.

It will also sell the products through distributors under its own brand name and could supply them on an OEM basis to other network equipment suppliers, he said.

The joint venture expects to market its first product before March next year.

The company's broad market will be demand for mid-to high-end routers and switches of the type used by telecommunications carriers and corporations in mission-critical applications. The new company hopes to achieve sales of ¥40bn (£204m) in its 2005 financial year, which begins in April next year.

The primary market for the joint venture, at least initially, will be Japan. The company expects to sell around 90% of its products domestically and is targeting a market share of around 30%.

The joint venture will be based in Tokyo and employ a staff of 350 employees with initial capital of ¥5.5bn (£28m). Hitachi will own 60% of the venture and NEC will hold the remaining 40%.

Hitachi and NEC stand to gain from the joint venture because it will help speed up the amount of time it takes to develop and sell new products, said Kaoru Yano, senior executive vice-president of NEC. The network equipment market is very competitive and time-to-market is very important.

The deal makes sense for both companies, said Junko Yairi, research manager of IDC Japan's communications group.

By working together the two companies stand to have a better chance at beating market leading suppliers such as Cisco Systems and Juniper Networks, she said. However, their combined strength alone is unlikely to see them gain significant market share.

"The core backbone is already established with Cisco equipment and Juniper T-series equipment so it's really hard to get into the market with a different technology," she said.

The challenge for Hitachi and NEC, therefore, is to develop technology that is good enough to persuade carriers to switch away from the US suppliers.

Martyn Williams writes for IDG News Service

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