After months of speculation, French-American telecom and networking equipment provider Alcatel-Lucent said in a statement to French regulators this week that it would “review options” to sell its enterprise business.
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Alcatel-Lucent's enterprise business is best known for its small-but-profitable Genesys contact center technology, though the unit also sells communications and collaboration applications and network switching products for LAN and wireless LAN. It's unclear at this point whether the company will shred the business and preserve the more successful pieces or sell the unit as a whole.
Reuters reported that private equity firm Permira made a $1.3 billion offer for the enterprise unit. Still, a number of third parties could be interested, including technology vendors looking to build out stronger communications and networking portfolios—similar to the move by Dell to acquire Force10, which was announced this week. Alcatel-Lucent could also be a prime target for vendors looking to push into European markets by acquiring already established customers bases.
Analysys Mason principal analyst Steve Hilton says it's no shocker that Alcatel-Lucent is looking to unload its enterprise unit, which he says is “tertiary” to the rest of the business and has been underperforming.
SearchNetworkingUK sat down with Hilton to discuss implications of an Alcatel-Lucent enterprise sale.
In communication with the press, Alcatel-Lucent has been talking about ramping up its enterprise business. What happened to make the company change course?
Steve Hilton: Over the last two years they have lost more and more focus. Two years ago they were going through this restructuring, and I can't tell if it ever ended. It's almost like they never got their mojo back.
If you think about the history of Alcatel and the history of Lucent, Lucent got rid of their enterprise business years and years ago. Ten years ago they got rid of Avaya. Alcatel had the enterprise business for a long time. When the two companies merged, I don't think Lucent ever had an appetite for getting back into enterprise.
What you have at Alcatel-Lucent is a telecoms networking company that sells into the telecoms carriers, and then you've got this little appendage that sells to enterprise, and I don't believe that tail was ever going to wag the dog.
I think finally someone said, 'You know what? This is a distraction to us, but it probably has some value to some other company, and frankly we could use the cash.'
Does this unit have value to another company?
Hilton: Well, there is always a price it would sell at. I try to figure out what would be the obvious places for it to go. On the vendor side, I could only see sense with another vendor that is Eurocentric— where it pools together Alcatel's European assets with its own and then, boom, they would have higher market share in Europe.
Another option would be the Chinese [who] are coming into Europe. This is a way to get kick started, by having some customers.
That's the vendor side. I think more likely [to purchase it] is the private equity side, and they would do the same thing that Avaya did a few years ago: Take it private; slim that thing down. Figure out where the real jewels are, put some investment behind them, show some growth and take it public.
What does it take to be a dominant player when it comes to UC, collaboration and PBX in the European market?
Hilton: I'm not sure it takes such different things [than in the U.S.]. I just think that Alcatel has quite a legacy in Europe and enterprises have been used to dealing with Alcatel on the PBX side and the network side for a long time, so the relationships are in place, and the channel partners of Alcatel-Lucent have their relationships in place.
Does this decision have anything to do with the uptake of cloud-based communications applications displacing on-premises collaboration or communications technology?
Hilton: I haven't heard any vendor express that kind of public fear around the move to the cloud or cloud-based communications. I don't know why that would impact Alcatel more than it would impact Siemens or NEC or Cisco.
Is there any other impact this could have on European markets that is worth noting?
Hilton: Depending on who buys this company, if it's a private equity investor, that investor will be laser-focused on making Alcatel stronger in its existing markets. If it's acquired by another vendor, you have to step back and say, 'OK, what does that mean for the product roadmap for existing Alcatel products? This is the same question every enterprise should have asked themselves about the Avaya-Nortel merger.
It's also interesting that inside this enterprise business there are a bunch of different product lines, and one of them is the Genesys product line, which is [for the] contact center. It's profitable and it's known as one of the best quality solutions in the market. I wonder if they would consider spinning that thing off separately.
There's been lots of talk about IBM buying a networking portfolio. Is there any chance that IBM will look toward Alcatel-Lucent enterprise?
Hilton: I'm guessing that IBM would not look in the direction of communications companies. I don't think Siemens or Alcatel-Lucent makes as much sense for them. They just haven't historically wanted to play in an industry that touches upon voice and things like that.