How Big Will Avaya Go?

Could Nortel just be an appetizer for Avaya?

Eric Krapf

July 21, 2009

3 Min Read
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This week's big UC news, of course, is the announcement that Avaya is bidding $475 million to acquire Nortel Enterprise Solutions out of bankruptcy. You can follow all the latest news on No Jitter; but there's another couple of No Jitter posts, not directly related to Nortel, that I want to call your attention to. These have to do with purported interest on the part of Silver Lake partners, the private equity firm that owns Avaya, in potentially acquiring Tandberg, the video solutions company (Sulkin here; me here).Another sign that Nortel could just be an appetizer for Avaya: They've hired a key M&A expert away from IBM. The publication reporting this story quotes Mohamad Ali, Avaya's new M&A honcho, as saying the move is "an opportunity to participate in and shape a whole new era of intelligent communications for healthcare, financial services, government and other industries... This represents a unique opportunity to potentially participate in one of the largest IPOs in the coming years."

To me, that comment also suggests that Silver Lake and its co-owner of Avaya, TPG, believe they can't earn back their $8 billion initial investment in Avaya just by taking the company public at more or less the scale they bought it in 2007--not surprising, given that the market ain't what it was back then. (For more on this element, see Allan Sulkin's blog post from today.) They need to try to build Avaya into a much more substantial, broad-reaching communications powerhouse.

One open question is what Avaya should do about Nortel's data networking portfolio. If they're going head-to-head with Cisco, that would suggest they should keep it and try to make these products a serious contender. But maybe the smarter move would be to sell off this business unit to help recoup some of the Nortel purchase price, and emphasize Avaya's strategic partnership with HP, whose ProCurve line of products has gained traction as a lower-cost alternative to Cisco. This would also be one fewer organizational issue to deal with in the merger; unless the new, expanded Avaya is really going to put significant weight behind the Nortel data line, that product family could find itself neglected and further fading away.

Besides, is the data element so critical? Neither Microsoft nor IBM are coming to the Unified Communications market with data gear. Avaya's gone the data route in the past with the Cajun switch products, and might be wiser to avoid treading that path again.

And what about Cisco? Does the Avaya-Nortel deal change what Cisco should be doing? I don't think it will. To get where it is today in enterprise communications, Cisco's strategy consisted primarily of leveraging its existing position in enterprise IT, and there's no evidence that this strategy is flagging. In fact, Cisco is gaining market share in contact centers, where they had not been as strong--suggesting that the "can't get fired for buying Cisco" mentality is not only alive and well, but spreading. And Microsoft? Well, their joint venture with Nortel, the Innovative Communications Alliance (ICA) probably isn't long for this world now.

More relevant, however, is what happens to Nortel's customer base in the wake of the Avaya purchase. If Avaya locks down the channel and comes up with a coherent production integration and migration strategy for the Nortel base, Microsoft has much less chance to poach these customers when Release 3 of OCS comes out next year. If, on the other hand, Avaya stumbles, allowing confusion to reign among customers and distributors, Microsoft could have an opening.Could Nortel just be an appetizer for Avaya?

About the Author(s)

Eric Krapf

Eric Krapf is General Manager and Program Co-Chair forEnterprise Connect, the leading conference/exhibition and online events brand in the enterprise communications industry. He has been Enterprise Connect.s Program Co-Chair for over a decade. He is also publisher ofNo Jitter, the Enterprise Connect community.s daily news and analysis website.
Eric served as editor of No Jitter from its founding in 2007 until taking over as publisher in 2015. From 1996 to 2004, Eric was managing editor of Business Communications Review (BCR) magazine, and from 2004 to 2007, he was the magazine's editor. BCR was a highly respected journal of the business technology and communications industry.
Before coming to BCR, he was managing editor and senior editor of America's Network magazine, covering the public telecommunications industry. Prior to working in high-tech journalism, he was a reporter and editor at newspapers in Connecticut and Texas.

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