Cisco and Nortel Networks have been identified by some
as prime candidates to scoop up Avaya, as rumours swirl around a
potential acquisition of
the
VoIP and
unified communications vendor.
Speculation about an Avaya buyout intensified this week when the
company abruptly delayed an investor conference with no stated
reason, and reports indicated that it was negotiating with bidders.
Everyone from Nortel and Cisco to Microsoft and Oracle has been
named as a potential suitor for Avaya, a company that is small by
comparison but packs a large punch with its VoIP solutions.
Still, some industry analysts feel that neither Nortel nor Cisco
would benefit by snatching up Avaya, noting that consolidation for
consolidation's sake is rarely a good move.
"First of all, Cisco never buys to consolidate markets, they buy
to innovate or they acquire market leadership," said Yankee Group
senior vice president Zeus Kerravala. "In this case, Cisco is the
market leader, and I think they would inherit stuff they really
don't need. I think Cisco feels they can achieve market leadership
without buying Avaya."
Kerravala pointed to Cisco's past roster of acquisitions, which
includes many small companies that help it to innovate and market
leaders like WebEx -- purchased recently -- to fuel that
innovation.
Nortel, which has been plagued by poor market performance and
lack of profitability, seems a more realistic fit. Nortel has
recently created a strong push for unified communications,
partnering with Microsoft and creating its own solutions for
collaboration. Kerravala said, however, that Nortel couldn't
benefit much from a consolidation play.
"As for Nortel, merging to consolidate historically hasn't
worked in tech," he said. "I think Avaya is a well-run company,
much more so than Nortel. In my opinion, trying to integrate two
legacy customer bases and two different product lines would be a
mess."
Matthias Machowinski, Infonetics Research's directing analyst of
enterprise voice and data, agreed, noting that a buyout from either
of the networking vendors would just signify continued
consolidation in the industry. As it stands, he said, Cisco holds
the No. 1 spot in the enterprise VoIP market, followed by Avaya,
with Nortel coming in third.
"All Cisco needs to do is keep doing what they're doing,"
Machowinski said. "Cisco would only be interested in Avaya's
services."
As for Nortel, he said, acquiring Avaya would simply eliminate a
competitor.
"Nortel has everything Avaya has and more," he said, adding that
Nortel would also have to support Avaya's vast user base. In
addition, Avaya and Nortel both cover similar geographical areas
and their products would overlap. Machowinski instead suggested
that a Nortel-Siemens acquisition would make much more sense
because Siemens is prominent in other areas, such as EMEA.
Irwin Lazar, principal analyst and program director of
collaboration and converges at Nemertes Research, disagreed, noting
that both Cisco and Nortel could benefit from an Avaya
purchase.
"Cisco would benefit from Avaya's expertise in the contact
center space, our research continually shows that Avaya is viewed
as a stronger player in the contact center arena than Cisco," he
said, adding that Cisco could be interested in Avaya's past
purchases of Nimcat Networks, a developer of embedded, peer-to-peer
IP communications application software, and Ubiquity Software,
maker of software platforms for the development and delivery of SIP
end-user applications.
And while Lazar agrees that an acquisition by Nortel would be
primarily a consolidation play, he said "Nortel has been pretty
vocal about wanting to build out a services model to support its
Microsoft agreement. Avaya launched managed services last year, so
there's an opportunity for Nortel to leverage Avaya's
capabilities."
Kerravala said Microsoft may be the most likely candidate to
pick up Avaya, since the software giant is looking to broaden its
VoIP and unified communications portfolio.
"If someone buys Avaya, I think having it be someone
Microsoft-like, who wants an entry and channel into voice, would
get the most bang for the buck," he said. "Adding share to a
company whose enterprise business is broken doesn't really fix the
problem, it just gives them more share to lose. It's HP-Compaq all
over again."
The future for Avaya users, whether or not there is an
acquisition, remains uncertain.
"In tech, consolidation should happen by attrition, meaning let
Darwinism apply and have the weaker vendors die," Kerravala said.
"Simply consolidating businesses doesn't create strong ones, just
bigger weak ones. I think Avaya customers would win if say an
Oracle or Microsoft buys them. They would lose if a traditional
vendor buys them. If it's Cisco, I'm not sure, but that's a
scenario I don't see happening."
Machowinski said Avaya users wouldn't suffer in the short term,
but he questions whether an acquiring vendor would be able to
integrate technologies and support Avaya's product platform
throughout the transition, especially since Avaya doesn't address
networking technologies like routers and switches, where Cisco and
Nortel put much of their focus.
Acquisition by a private equity or investment firm would be the
most likely outcome, he said. One firm, Silver Lake, has been
described as interested, but even then, what the acquisition would
accomplish remains unclear.
Oracle and Microsoft, Kerravala said, are looking to get into
VoIP and IP communications, an area where Nortel and Cisco both
have a strong focus. Where Nortel and Cisco may use facets of what
Avaya could offer, Oracle and Microsoft could see stronger
benefits.
"Their motivation to acquire would be to get the technology and
build on it," Kerravala added. "Like I said, acquisitions for
innovation tend to work out better than for consolidation."
Overall, Machowinski said, it will be interesting to see what
shakes out, especially since Avaya is already pretty well
positioned in the market and is not considered "distressed" enough
to be a prime target for a takeover.
"It's certainly an interesting development," he said. "I
certainly don't see Cisco going forward with it, especially since
Cisco and Avaya are pretty fierce in their competitiveness. You
have to wonder if you could ever marry the two cultures at this
point."