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Everything Must Go! But Is There a Buyer for the Nortel Enterprise Division?
At the end of last week the beleaguered Nortel finally stated that all of the company's assets are up for sale. This has been started with the wireless carrier division being bought up by Nokia Siemens Networks (NSN) for $650 million and includes all of the divisions, including Enterprise Solutions.So this begs the question, who would buy Nortel Enterprise and who would benefit from it?
There is certainly no shortage of rumors of who might buy Nortel Enterprise but there's no slam dunk logical buyer. Here are some of the more common rumored acquirers and how they might fare.
Avaya: Avaya acquiring Nortel's enterprise assets does make some sense in that Avaya would get a customer base close to its own in size. Over the last several years Avaya has had a difficult time acquiring new customers but has done a good job, probably better than any other legacy voice vendor, in flipping its own base to IP. This would give Avaya easily the #1 position in overall voice and the opportunity to convert the Nortel base to Avaya. The downside would be that Avaya would inherit a customer base and channel that has been in decline since Nortel declared bankruptcy. Since Nortel has fallen on hard times many of Nortel's competitors have put a full court press on Nortel's customers and channels trying to get them to switch allegiances. From a product perspective, there is a lot of overlap between Avaya and Nortel on the voice side but none on the data side and the question would be: Does Avaya want to enter the networking side of the business? A couple of years ago I would have said a definitive no, however the company is now being run by the Giancarlo/Kennedy duo that have their roots with Cisco. Since becoming involved with Avaya, Giancarlo has talked a lot about a "systems approach" which is what he put together at Cisco. Nortel would help accelerate that.
Siemens: Similar to the Avaya situation, Siemens would acquire to gain share. Like Avaya, Siemens has struggled to gain new customers and never really made much traction in North America, a market it has coveted for years. So by acquiring Nortel Enterprise, Siemens would hold a dominant position in North America and get a nice installed base to start converting to the HiPath series. The same challenge of declining customer base and channel would exist, but it would at least give Siemens a significant North American channel to try and save. From a product perspective, there is obvious overlap on the voice side, but unlike Avaya, there's overlap on the data side too because of Enterasys.
Cisco or Microsoft: These names are always tossed around when questions of Nortel comes up and in both cases the deal just doesn't make sense. First of all, I agree with what Alan Sulkin said in his last blog regarding Cisco and Microsoft. Both companies are tracking towards being the two dominant enterprise communications vendors and I think neither company really feels they need Nortel's assets, customers or channel to get there. Microsoft would inherit a hardware portfolio that it really doesn't want or need (although the Microsoft switch might annoy Cisco further) and Cisco has pretty much all of what Nortel has. Cisco and Microsoft will duke it out with their current products and strategy and I can't really see a scenario where either one makes sense.
IBM: This might have made sense a couple of years ago as IBM was trying to figure out what it wanted its role to be in this market, but it seems to have figured that out. Acquiring Nortel would really destroy much of the Sametime Unified Telephony (SUT) vision and put many of its relationships with the telephony vendors at risk. Additionally it appears to be building its own data portfolio through the OEM of best-of-breed vendor Brocade and perhaps Juniper, so the Nortel data portfolio would be a big step down. Like Cisco and Microsoft, IBM doesn't need the channel or the customer base so to me this seems like a long shot.
HP: At one time I think this might have made sense. After all, HP seems to like to buy other large companies and then take years to integrate them, creating a portfolio mess for its customers (Compaq, EDS). I do think to compete with Cisco effectively over the long term HP will need to build or acquire a voice portfolio as well as some other networking assets, so this could have been a decent fit. However, I don't think HP necessarily feels that way and seems content to round out its portfolio through its ProCurve One alliance. Also, HP seems laser focused on stealing Ethernet switch share from Cisco and is busy integrating ProCurve into TSG; acquiring Nortel might derail the momentum that HP's built.
I know the acquisition would create a bigger debt load for Silver Lake to manage, and create a portfolio mess on the voice side, but the prospect of getting a complete data portfolio and #1 share may offset the downside.
From a personal standpoint, I do want to say how sad I think this is. As a Canadian, going through college, it was every engineering student's goal to work at Nortel (then BNR--Bell Northern Research). It was THE place to go co-op for the summer; if you went to work there after college, you pretty much had kick started your career into something great. It's almost unimaginable to think how far this company has fallen so fast, and the loss of market capitalization to the point where it could be all gone post acquisitions. It just shows if you take your eye off the ball in this industry, someone's going to grab it out from under you. Nortel may be the one we're currently focusing on, but won't be the last company to fade away as computing, communications and networking continue to merge.