The sudden flurry of rumor and speculation about Alcatel-Lucent spinning off its enterprise division caught me by surprise. I mean, there's always buzz of this kind circulating about, but it kind of becomes white noise until something actually starts to happen. Last week it seemed like things were in fact starting to happen. A MarketWatch reporter got the ball rolling. Economic Times gave it an additional shove. Then Eric, Blair, Sheila, Dave--and now I--spun it this way and that.
The reason why I was caught off guard is, in my opinion, Alcatel-Lucent Enterprise hasn't been acting like an organization on the block. They're boasting about profitability. (Profitability issues are what drove Siemens and Ericsson to sell of their respective enterprise divisions.) They're investing heavily in product development, including long-term R&D projects based on technology from Bell Labs. They're driving sales of Alcatel-Lucent carrier equipment into large enterprise accounts and are otherwise touting synergies with the carrier group. And the company--a few years ago now--reorganized to better fold the enterprise and carrier groups together.
Be this as it may, it certainly wouldn't be the first time a communications developer deriving the bulk of its revenues from carriers just didn't get what the enterprise market is all about and turned its enterprise group loose. If Alcatel-Lucent were to do so it would be following trails long since blazed by Lucent, Siemens and Ericsson. And with enterprise rarely factoring in to Ben Verwaayen's presentations and interviews, perhaps that's a bit more writing on the wall.
But for the time being let's put aside the question of whether or not Alcatel-Lucent Enterprise is on the block. A number of companies have been proposed at likely, or at least appropriate, suitors. Without implying that any one of them will in fact make an offer, since I of course have no inside information of this sort, let's look at each in turn to see what they would stand to gain, what challenges an Alcatel-Lucent Enterprise acquisition would hold, and the likelihood they would buy the organization.
Aastra. An M&A specialist, Aastra has a long history of taking in mainly European-based developers of business communications systems, namely the enterprise groups of Ascom, DeTeWe, EADS, and Ericsson, as well as a Euro-based bit of Nortel. I'm sure Aastra would like nothing better than to sew Alcatel Enterprise into its complex corporate tapestry. It would further consolidate its position in the European market...give it a market leading position, in fact. And it would give Aastra a data networking portfolio it probably doesn’t much want, but that would compare with those of Avaya, Cisco and Siemens Enterprise. But Aastra is a very fiscally conservative company. I'm guessing Alcatel-Lucent Enterprise would carry much too high a price tag for Aastra to pursue this very long.
Avaya. Just what Avaya needs: more debt. Buying Alcatel-Lucent Enterprise--remember, Alcatel corporate is said to be wanting a cash offer--would add to an already heavy debt load. Also, the purchase would complicate and already byzantine product integration and rationalization initiatives thanks to the Nortel acquisition. This being said, an Alcatel-Lucent Enterprise acquisition would hand Avaya something it has long craved: market share in Western Europe. Avaya's ambitions in the region spurred it to buy Tenovis years ago. An Alcatel Enterprise acquisition would solidify its European presence.
Cisco. It's common knowledge that Cisco buys small companies with specialized technology. Not big ones with complex portfolios and legacy products. Sure, there's been the rare exception, but they've been just that. Rare. What's more, Cisco doesn't need Alcatel-Lucent Enterprise. Doesn't need its PBX business. Doesn't need its routers and switches. Doesn't need its applications or new architecture. Doesn't need its contact center busin... Just wait a minute there. Cisco's contact center division could certainly stand a boost, a boost that the Genesys product, installed base, and channel would certainly provide. But I just don't see it. Cisco seems perfectly comfortable with the steady market share increase in UC and, to a lesser extent, contact center business that it has been able to achieve by itself. Besides, Cisco sees collaboration software as the next horizon to run toward, and Alcatel-Lucent Enterprise won't help it there.
Ericsson. I only bring Ericsson up because the first article I read on the supposed shopping around of Alcatel-Lucent Enterprise mentioned it as a potential buyer. This greatly undermined the reporter's credibility as far as I’m concerned. Ericsson, like Siemens AG, Lucent, and now theoretically Alcatel-Lucent, shed its enterprise organization to focus on its core carrier business. Aastra picked it up at a bargain basement price and gave innovative Ericsson Enterprise products, like MX-ONE and Solids eCare, pride of place in the Aastra portfolio. The idea that a Swedish telecom company would shed its Swedish Enterprise division only to pick up a French Enterprise division is as unlikely as an American telecom company shedding its American enterprise division only to merge with a French telecom company with a healthy enterprise division. Ok, maybe that wasn't so unlikely. But you get my point.
HP. In terms of companies with the most to gain from a purchase of Alcatel-Lucent Enterprise, HP certainly stands out. A telephony system based on up-to-date technology and with a vibrant customer base, unlike the VCX systems that came with the 3Com acquisition. A market-leading contact center product. A better toehold in Europe. 86 all those technological descendants of the Xylan pizza switch. (Anyone else remember those? Always set my stomach to growling.) But the rest--just to beat the food references into the ground--is good stuff, Maynard. If HP wants into the voice networking business, this is the way to do it. But I'm thinking HP would have to pay a pretty penny. Too pretty a one than it's used to when making corporate acquisitions.
IBM. Whenever there's a PBX company for sale, eyes turn to IBM. It happened with Nortel, with Avaya, and I'm pretty sure with Siemens Enterprise though I can't find any articles to back me up. The thinking is that IBM is in the UC market, but relies on partners for call control software. Microsoft has call control and--I suppose because the universe craves balance--everyone wants IBM to have call control too. Granted, IBM has come out with the occasional "we're interested in doing more in telephony than we’ve done until now" sort of talk. But last time I checked they're still roaring forward with the "Bring Your Own PBX" strategy that's always marked their UC solution. Acquiring a PBX company--again--would constitute a huge strategic change.
Microsoft. Microsoft is a software company. (In case you haven’t noticed.) Alcatel-Lucent Enterprise, while a lot of its products are software-based, sells tons of hardware. Microsoft won't get into the hardware business. They tried it with Response Point and killed it. They tried it with Round Table and spun it off to Polycom. However, Microsoft's UC solution could use a contact center platform of its very own, rather than rely on partners like Aspect Software, Interactive Intelligence, and prairieFyre. Genesys is pure software. It could be a match, I suppose. But if the rumors are true that Alcatel-Lucent corporate wants to sell the entire enterprise group in one package, Microsoft purchasing the whole kit and caboodle just to get its hands on Genesys would be a very messy way of going about it.
Siemens Enterprise. I can see Siemens Enterprise as very interested in acquiring Alcatel-Lucent. The rationale is identical to the interest Avaya had in acquiring Nortel. Kill the competition. Dominate the region. It would not help Siemens Enterprise with addressing North America expansion problems, but--regardless of what we Americans were taught in school--there is a larger world outside the US. We know the company is interested in making a big acquisition. They just barely lost out to Avaya in taking over Nortel's enterprise group. Of course Siemens Enterprise would face huge product overlap issues, but nothing much worse that what the combined Avaya-Nortel is dealing with.
So who will win out? What will happen? I'm not going to offer a prediction. But I will tell you what I’d prefer to happen. If Alcatel-Lucent feels a need to set loose its enterprise group, set it up as its own company. Whether public or private, I see no reason why Alcatel-Lucent Enterprise couldn't be master of its own ship for a change.
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