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What's Ahead for Nortel and Its Customers? (Update 3)

Industry Executive 1: Customers should hold tight; most do business with distributors who are stable, so "clearly, parts will be available" for Nortel gear that's in place.

This executive sees the Nortel Enterprise business as much stronger than its beleagured carrier lines of business: "The Nortel carrier business is fundamentally weak. The enterprise business is at least sustainable."

Bottom line: "If I was a Nortel customer, I would just let it play out. Their enterprise business is a big business, it's one of the few businesses they have that are sustainable."

This executive suggests that Nortel Enterprise could come out of the bankruptcy process in a variety of ways, either independent or acquired by private equity, but most likely separated from the carrier portion of the business.

Kevin Gavin, VP of Marketing, Shoretel:

This is the "Darwinian moment" that I mentioned when we spoke at VoiceCon SF. It is where the old and weak (TDM based legacy players) fade away and make room for the new and strong (true IP based innovators) to take the lead.

Current Nortel customers have good reason to be concerned but fortunately there are a few strong remaining companies who will continue to drive the category forward so the Nortel customers can transition to a more stable provider.

For ShoreTel, this is a very positive development that we have been expecting. We have a very high win rate when we are considered and we have a growing base of "raving fans" as customers but all too often business take what they previously considered the "safe" path and only consider larger legacy providers.

With this bankruptcy, it is becoming clearer that the legacy providers are not really the safe choice that they once were. We had already been seeing increased interest in ShoreTel and we expect this to pick up now that Nortel is no longer a viable choice.

With over $100 million in cash and no debt.ShoreTel has a very strong balance sheet and a healthy and growing business model. We see this as an opportunity to continue to gain market share.

Current Nortel customers have good reason to be concerned but fortunately there are a few strong remaining companies who will continue to drive the category forward so the Nortel customers can transition to a more stable provider.

For ShoreTel, this is a very positive development that we have been expecting. We have a very high win rate when we are considered and we have a growing base of "raving fans" as customers but all too often business take what they previously considered the "safe" path and only consider larger legacy providers.

With this bankruptcy, it is becoming clearer that the legacy providers are not really the safe choice that they once were. We had already been seeing increased interest in ShoreTel and we expect this to pick up now that Nortel is no longer a viable choice.

With over $100 million in cash and no debt.ShoreTel has a very strong balance sheet and a healthy and growing business model. We see this as an opportunity to continue to gain market share.

INNUA (the International Nortel Networks Users Association):

The International Nortel Networks Users Association (INNUA) supports Nortel in light of their recent announcement to seek creditor protection. INNUA's members are dedicated Nortel customers who will continue to support the reliable Nortel solutions they have in place.

INNUA believes Nortel's decision will afford the company the opportunity to truly focus on strengthening the business to meet Nortel customers' current and future communications needs.

INNUA provides a direct channel for customers to reach Nortel and has maintained a deep strategic relationship with Nortel leadership. The organization plans to remain engaged with Nortel throughout this transition and keep the customer community updated.

The INNUA Executive Committee was briefed shortly after the announcement by Joel Hackney, Nortel's President of Enterprise Solutions and Wes Durow, Nortel's Vice President of Enterprise Marketing and Strategy and subsequent discussions are scheduled in the coming week.

"INNUA represents thousands of Nortel's customers who remain committed to Nortel solutions. The majority of our members have been Nortel customers for more than 10 years. We appreciate how proactive Nortel has been with this decision and their affirmation of the support for their customers during this time" said INNUA President, Steve Ford. "We fully support Nortel's decision and trust it will bring an even stronger focus to the enterprise solution set."

INNUA chooses not to speculate on Nortel's next move, but supports the immediate actions Nortel has taken. "The timing of this announcement was critical to ensure Nortel maintained resources to continue operation through the restructuring" commented Victor Bohnert, INNUA's Executive Director "Nortel's step to solidify the company's relationship with Flextronics to ensure their supply chain will continue to operate uninterrupted will help the business continue during this process."

INNUA will continue to focus on providing a direct line of communication between its members and Nortel. The organization of more than 4,000 Nortel stakeholders expects the questions regarding Nortel's corporate strategy going forward will result in a surge in attendance for their upcoming Global Connect conference, June 7-10 in Pittsburgh, PA.

"Nortel has, as recently as this morning, re-affirmed their support for the event and we expect the opportunity for Nortel customers to engage senior Nortel executives in a face-to-face environment is more important than ever" Ford speculated.

INNUA believes Nortel's decision will afford the company the opportunity to truly focus on strengthening the business to meet Nortel customers' current and future communications needs.

INNUA provides a direct channel for customers to reach Nortel and has maintained a deep strategic relationship with Nortel leadership. The organization plans to remain engaged with Nortel throughout this transition and keep the customer community updated.

The INNUA Executive Committee was briefed shortly after the announcement by Joel Hackney, Nortel's President of Enterprise Solutions and Wes Durow, Nortel's Vice President of Enterprise Marketing and Strategy and subsequent discussions are scheduled in the coming week.

"INNUA represents thousands of Nortel's customers who remain committed to Nortel solutions. The majority of our members have been Nortel customers for more than 10 years. We appreciate how proactive Nortel has been with this decision and their affirmation of the support for their customers during this time" said INNUA President, Steve Ford. "We fully support Nortel's decision and trust it will bring an even stronger focus to the enterprise solution set."

INNUA chooses not to speculate on Nortel's next move, but supports the immediate actions Nortel has taken. "The timing of this announcement was critical to ensure Nortel maintained resources to continue operation through the restructuring" commented Victor Bohnert, INNUA's Executive Director "Nortel's step to solidify the company's relationship with Flextronics to ensure their supply chain will continue to operate uninterrupted will help the business continue during this process."

INNUA will continue to focus on providing a direct line of communication between its members and Nortel. The organization of more than 4,000 Nortel stakeholders expects the questions regarding Nortel's corporate strategy going forward will result in a surge in attendance for their upcoming Global Connect conference, June 7-10 in Pittsburgh, PA.

"Nortel has, as recently as this morning, re-affirmed their support for the event and we expect the opportunity for Nortel customers to engage senior Nortel executives in a face-to-face environment is more important than ever" Ford speculated.

I'll add my own thoughts here: A commenter at Light Reading made a point that's worth remembering if industry consolidation continues to go forward: Going Chapter 11 gets a company out from under a lot of obligations, and doing it sooner rather than later--in Nortel's case, when there's still a cash reserve--improves the prospects for getting out of Chapter 11 in the best possible shape.

Furthermore, between the economy and the technology transition from TDM to Unified Communications--with some sort of path through IP telephony--Nortel could have a shot at seeing its installed base stand pat, rather than abandon it. Investments are being delayed and UC itself is still being defined, all of which means that even users who have lost some confidence in Nortel may not move right away, buying the company some time to change minds.

And, though the INNUA statement has its own agenda (they seem rather optimistic about Flextronics' attitude, given reports like this), Nortel certainly has a lot of loyal customers.

On the other hand, the industry is consolidating, and it's hard to see how the Enterprise division comes out of Chapter 11 both independent and stronger. It's hard to imagine there being much appetite in the private equity world for a big buy like Nortel, at least in the current environment.

So are there possible acquirers? For product fit, I'd have said Aastra. They've been forced to turn to reselling Broadsoft's carrier softswitch as their large-enterprise platform, so buying the Nortel base would give them a better way forward at the high end, as well as bulking up their U.S. SMB play. And they've certainly been in acquisition mode with the Ericsson enterprise division buy that closed late last year. But more than half of that $107 million purchase was financed with a loan, according to Aastra's 3Q08 report, and these are different times, credit-wise. Not to mention the integration challenge.

Speaking of which: Avaya? It's hard to see Silver Lake and TPG sinking more money into that $8 billion project, given the challenges they already face (which Brent Kelly outlined here). And there's the almost total overlap in product lines.

Cisco? No way.

Microsoft? I talked that up awhile ago, and clearly was wrong.

So do you look outside the confines of the industry as it's currently defined? Would Oracle pre-empt its Beehive collaboration initiative, or possibly try to build a challenge to Cisco by adding Nortel Enterprise? That sounds likelier than anything potentially coming out of the legacy communications-vendor landscape, but as Allan said in his post: Only time will tell.

Nemertes Research: Their impact analysis is here.