Nortel’s Non-Savvy Investment (Exhibit A)

In the summer of 2000, Nortel acquired Alteon WebSystems, a vendor of load-balancing and traffic-management switches, for $7.8 billion in stock. A short time afterward, the value of that stock plummeted. What’s more, ever since the technology bubble burst, Nortel has been on a seemingly inexorable path to oblivion.

Given that Radware announced earlier this week that it has successfully completed its $18-million acquisition of Nortel’s application delivery gear, which includes what remains of Alteon WebSystems, one would have to say that, even with its steadily depreciating stock taken into account over the past nine years, Nortel did poorly on its Alteon transactions.

Of course, the Alteon acquisition was just one of one many strategic and tactical missteps, in conception and execution, that Nortel has made during its decline and fall as a former networking-industry titan.

When one considers the comparative value that Cisco derived from its $5.7-billion acquisition of ArrowPoint Communications earlier in 2000, it’s clear that Cisco conceived and executed its load-balancing acquisition infinitely better than did its erstwhile rival with its purchase of Alteon.

What happened to the Alteon acquisition is symptomatic of larger problems that afflicted Nortel. For years, the company’s strategic focus has been blurred, its execution muddled, and its timing poor.

Hindsight is 20/20, of course, but even at the time Nortel made the Alteon acquisition, many observers were wondering why the company was buying into the load-balancing space and why it was overpaying for the privilege of having a seat at that particular table.

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2 responses to “Nortel’s Non-Savvy Investment (Exhibit A)

  1. i worked in that group at nortel. their failure was a long time coming and was due to:
    1. no product updates between 2004 (when the 2424 came out) and the present. The development strategy was a disaster.
    2. no channel development – when i left in 2007 they didn’t have a single reseller of alteon products left on the entire west coast of USA! – not one!!
    3. why did their reseller channel collapse?
    – incompetence at channel development
    – no sales leads – their marketing team completely failed to deliver sales leads to the channel
    -no co-opt funds
    4. complete lack of marketing – see point above on sales leads. the nortel marketing organization had no profit and loss responsibility for individual products – so they did no data product specific marketing.
    5. no emarketing at all – try to find a google adword campaign for any of their data products – never happened
    6. no SEO – try finding their products

    Above all – the management team was asleep at the wheel. All the above problems were obvious and fixable. (well the dev problems were a tough nut, but not insolvable).

  2. Thanks for the post, former Nortel guy. It looked bad from the outside, but apparently it looked even worse from the vantage point of Nortel’s knowledgeable employees.

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