Merger mania Where do newly aligned vendors go from here?

Three huge mergers in the last year have reshaped the face of the internetworking devices market.

The first merger came when Cisco Systems Inc. bought StrataCom. That was followed in February by 3Com's acquisition of U.S. Robotics, and just last week, Ascend's acquisition of Cascade.

The mergers bear several similarities: All were multibillion-dollar deals and, in each case, a company added products to its stable by acquisition rather than by internal research and development.

But the Cisco and Ascend acquisitions stand apart from 3Com's acquisition of U.S. Robotics because of the types of products that the companies offer.

Before it acquired U.S. Robotics, 3Com specialized in local area network hardware. When it bought U.S. Robotics, 3Com gained U.S. Robotics' large share of the consumer-oriented access device market. The merged company has huge market share in the LAN and retail network access device markets, but it doesn't tread on the turf that Cisco and Ascend are trying to claim.

Cisco and Ascend target their products more at carriers and Internet service providers than the private LANs and single-modem users that the 3Com/U.S. Robotics merger more directly affects.

"Neither Cisco nor Ascend wants to sell commodity-level products," said Bobbi Murphy, senior analyst for Dataquest. The Ascend/Cascade merger solidifies Ascend's position in the ISP market and gives them access to the traditional carrier market, Murphy said.

The Cisco/StrataCom merger, on the other hand, gave Cisco a presence in the carrier markets. Cisco had been primarily known as an enterprise and ISP router company.

As the major internetworking players have grabbed new market share by acquiring new business segments, their customers have been watching closely. "It's interesting to watch what's been going on," said Tony Kelly, corporate marketing director for PSINet Inc., Washington.

It's common to see the top company in an industry buy companies a few rungs down, he said, but the recent mergers have involved companies not buying competitors but adding business segments by acquiring top companies in other industries.

"With Ascend, you see a company that's clearly the leader in its sector buying Cascade, which is clearly number one in frame relay," Kelly said. "When you get two number ones together, that's a formidable company.

The spate of mergers is indicative of the tack internetworking is taking, said Greg Gum, solutions development executive director for U S West's !nterprise division.

"There's a general agreement [among carriers] that you see LAN and WAN merging," Gum said, adding that internetworking equipment providers are seeking to provide not only customer premises equipment but switching elements as well.

But as the companies add to their product portfolios, they face decisions regarding product lines that will affect business down the road.

ISP BBN Planet has looked at both Cascade's and Ascend's access concentration offerings and found strengths in both, said Rob Welsh, dial-up engineering director for BBN Planet. But now it's a wait-and-see game for ISPs that want to weigh the new Ascend products against other vendors', he said.

Once the dust has settled and the merged companies have integrated, they will turn their attention to locking up customers.

But there may be no clear-cut winner, according to Welsh. " Who goes home with the trophy will be [determined] on a per-product basis," he said. "Each one will have a handful of products that are ahead of the other guy."