Nortel ES sale discussion, opinion and analysis

It's only been three days since Avaya was announced as the winner [1] of the stalking horse auction for Nortel's Enterprise Solutions division, but that hasn't stopped pundits across the Web from christening and cursing the move already. Before considering the opinions, however, let's consider the facts.

Avaya's total $915 million sticker price for the division is only $55 million more than the division's revenues for the first half of the year. Though Q2 revenues were off 28 percent from 2008, the division saw an 18 percent sequential revenue increase [2] in the quarter, which indicates that the ES group could be stabilizing even during Nortel's period of tumult. But Nortel does not break out group profits and losses, so it is difficult to know how much money the division is losing currently.

The buy also gives Avaya the clear lead [3] in market share in the enterprise telephony space, as the company now controls 25 percent of the market compared to Cisco's 16 percent share. Though the combined company's market share currently is dominating, pundits and analysts offered their opinions about the likelihood of the share being maintained.

A TMC article [4] by Brendan Read surveying enterprise telephony competitors ShoreTel and Interactive Intelligence found more excitement than fear about the combined entity. The companies don't see a customer transitioning from Nortel to Avaya due to the deal as a foregone conclusion, and think significant business will be up for grabs in the next three years as Nortel gear needs replacement.

Blogger The VAR Guy [5] points out on MSPmentor that there is significant VoIP and UC product overlap between the two companies, so being clear and proactive about which products will be supported post-merger is crucial to retaining customers and partners. Also, a CRN article on the deal by Lila Guan makes the excellent point that until the deal closes, which a Canadian judge said would be in December [6], Nortel and Avaya remain separate companies competing for business. However, I can't imagine too many Nortel wins in the interim, as anyone following the space knows the nails are already in Nortel's coffin.

Finally, much legitimate concern has arisen about the merger's effect on the operations of the combined entity. A Network World article surveys analysts [7] who think that the integration of the two organizations could be costly, time consuming, and ultimately detrimental to the sales growth of the new enterprise telephony giant. Analysts said they were advising customers to hold Avaya to its stated goal of supporting Nortel gear in the interim and facilitating a smooth transition to future Avaya products.

Now that the Enterprise Solutions division has been auctioned successfully, all eyes turn to Nortel's remaining divisions, especially the Carrier VoIP and Application Services division, which is currently the global market leader [8] in this space.

Where do you think this group will end up? In an interview, Nortel's Sita Lowman, marketing leader of the Converged Core Networks products, would only say that the auction process continues for all remaining units and that there has been "significant interest" in the CVAS division. We'll wait and see. 

P.S. - I'm taking submissions for the FierceVoIP Fierce15 by direct email to me, no submission form. Tell me briefly in the email why your company deserves inclusion in the list this year, and I'll set up interviews to discuss further with companies in the running. 

- Pete [9]