Amazon-RIM: Summer Reunion?

Think back to last December, just before the holidays. You might recall a Reuters report, quoting “people with knowledge of the situation,” claiming that Research in Motion (RIM) rejected takeover propositions from Amazon.com and others.

The report wasn’t clear on whether the informal discussions resulted in any talk of price between Amazon and RIM, but apparently no formal offer was made. RIM, then still under the stewardship of former co-CEOs Jim Balsillie and Mike Lazaridis, reportedly preferred to remain independent and to address its challenges alone.

I Know What You Discussed Last Summer

Since then, a lot has happened. When the Reuters report was published — on December 20, 2011 — RIM’s market value had plunged 77 percent during the previous year, sitting then at about $6.8 billion. Today, RIM’s market capitalization is $3.7 billion. What’s more, the company now has Thorsten Heins as its CEO, not Balsillie and Lazardis, who were adamantly opposed to selling the company. We also have seen recent reports that IBM approached RIM regarding a potential acquisition of the Waterloo, Ontario-based company’s enterprise business, and rumors have surfaced that RIM might sell its handset business to Amazon or Facebook.

Meanwhile, RIM’s prospects for long-term success aren’t any brighter than they were last winter, and activist shareholders, not interested in a protracted turnaround effort, continue to lobby for a sale of the company.

As for Amazon, it is said to be on the cusp of entering the smartphone market, presumably using a forked version of Android, which is what it runs on the Kindle tablet.  From the vantage point of the boardroom at Amazon, that might not be a sustainable long-term plan. Google is looking more like an Amazon competitor, and the future trajectory of Android is clouded by Google’s strategic considerations and by legal imbroglios relating to patents. Those presumably were among the reasons Amazon approached RIM last December.

Uneasy Bedfellows

It’s no secret that Amazon and Google are uneasy Android bedfellows. As Eric Jackson wrote just after the Reuters story hit the wires:

Amazon has never been a big supporter of Google’s Android OS for its Kindle. And Google’s never been keen on promoting Amazon as part of the Android ecosystem. It seems that both companies know this is just a matter of time before each leaves the other.

Yes, there’s some question as to how much value inheres in RIM’s patents. Estimates on their worth are all over the map. Nevertheless, RIM’s QNX mobile-operating system could look compelling to Amazon. With QNX and with RIM’s patents, Amazon would have something more than a contingency plan against any strategic machinations by Google or any potential litigiousness by Apple (or others).  The foregoing case, of course, rests on the assumption that QNX, rechristened BlackBerry 10, is as far along as RIM claims. It also rests on the assumption that Amazon wants a mobile platform all its own.

It was last summer when Amazon reportedly made its informal approach to RIM. It would not be surprising to learn that a reprise of discussions occurred this summer. RIM might be more disposed to consider a formal offer this time around.

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For Huawei, U.S. M&A Door Remains Closed

Huawei Technologies felt it would be different this time.

Back in 2008, Huawei was thwarted in its ambition to become a minority owner of 3Com, tagging along on an $2.2-billion acquisition bid by Bain Capital that ultimately was discouraged on national-security grounds by the Committee on Foreign Investment in the United States (CFIUS).

After that embarrassment, which caused a Huawei executive to term the American national-security concerns “bullshit” — if only because Huawei would have owned just 16.5 percent of 3Com if the Bain-led purchase had been approved — the Chinese network-gear company assumed a lower profile, licking its wounds and biding its time.

Better Luck This Time?

Huawei was strong in its home market, after all, and it was gaining momentum and customer patronage in Europe and in developing markets in Asia, Africa, and South America, too. It would have other opportunities to crack North America. Time was on its side.

In recent months, Huawei felt now was the time to step from the shadows again. The company believed circumstances had become more favorable, perhaps because of the worldwide economic downturn, perhaps because if felt that old doubts and reservations about its ties to the People’s Liberation Army (PLA) and China’s rulers had faded under a new presidential administration in the U.S.

Whatever the case, Huawei earlier this year got ready to take another high-profile plunge into M&A activity on American shores, this time without the cover of a private-equity partner. (One concern, which nobody uttered publicly back in 2008, was that Bain might have been acting as a temporary beard for Huawei, taking the majority share of 3Com up front only to sell it back to Huawei, which had a joint venture with 3Com called H3C, in increments. Was it true? We’ll probably never know.)

Lobbyists, Lawyers, and Investment Bankers

Just a few months back, according to sources quoted by Bloomberg, Huawei pulled out all the stops. It hired lobbyists, investment bank Morgan Stanley, and high-priced law firms such as such as Sullivan & Cromwell LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

Even with all that well-connected hired help, and even though it outbid its rivals by a wide margin in two different acquisition forays, Huawei went home empty-handed. Again.

Indeed, as Bloomberg reported, Huawei outbid Nokia Siemens Networks (NSN) for Motorola’s telecommunications-networking unit and it offered more than Pace PLC put forward to close its purchase of 2Wire. In the case of the Motorola division, Huawei’s bid surpassed the one offered by NSN by more than $120 million.

In each case, the seller was concerned that a Huawei acquisition would be delayed or rejected on U.S. national-security concerns. As such, the sellers in both transactions sought to negotiate the simplest, surest deal rather than the one that offered the biggest payday. For its part, NSN got creative in negotiating an agreement with Motorola that indirectly boosted the value of its offer, allowing Motorola to argue that it had done its fiduciary duty in negotiating the best deal possible under the circumstances.

Motorola might even have gilded the lily by suing Huawei in the middle of July, alleging that the Chinese vendor had wrongfully obtained Motorola’s trade secrets relating to cellular-networking gear.

Back to the Stop Sign

Well, no matter how you cut it, Huawei has been rebuffed again. This time it had a coterie of well-heeled dealmakers in its corner, and it still was unable to overcome its own political radioactivity. Motorola and 2Wire, as well as their agents, were concerned that deals with Huawei might not be approved. Rather than take that risk, they went in a different direction.

What can Huawei do now? Short of an explicit announcement from the U.S. government that it will look favorably on Chinese network-equipment companies’ acquisitions of U.S. technology concerns — an unlikely scenario. to be sure — Huawei will remain at the same impasse that stopped it cold in 2008.

At NSN, Nokia and Siemens Still Grope for Exit

Let’s say two companies are involved in a joint venture that’s been an unhappy marriage. The relationship isn’t as toxic as the former partnership between Mel Gibson and Oksana Grigorieva, but it hasn’t been a day at the beach, either. Neither partner wants to remain in the business alliance; they’re both looking for a dignified exit.

With logic and reason as your guides, what would you expect their next moves to be?

Yes, one partner might approach the other, looking to sell its interest in full. It’s also possible that one company might sell its interest to an approved third party, offering a right of first refusal to its JV partner. It’s also conceivable that both partners would put the joint venture on the block, hiring an agent to discreet present it to private-equity shops and strategic buyers. They might even consider putting some lipstick on the pig and trying an IPO, hoping to benefit from auspicious timing and favorable lighting.

Okay, now throw logic and reason to the wind. What would you do now?

Maybe, as Nokia and Siemens have done at Nokia Siemens Networks (NSN), you’d compound the unhappy union by acquiring a floundering telecommunications-equipment business from a vendor eager to unload it. Misery loves company, after all, so why not plunge headlong into the pit of despair? If you put on your absurdist bifocals, the move just might make sense on a surreal existential level. But we’re talking business, not Dadaism.

Just when I think there’s nothing in this crazy industry that can surprise me, something does just that. I admit, I’ve been puzzling over why NSN would buy Motorola’s networks business, which retains some wireless-operator customers, especially in North America, but also carries hefty baggage in the form of a product portfolio predicated on technologies (a large portion of its 3G gear, and its WiMAX 4G offerings) that have gone out of fashion. NSN will pay $1.2 billion for the Motorola unit, and — other than some modest scale and a minor ostensible market-share gain — I don’t see how it derives much benefit from the transaction.

Squeezed from all angles, from traditional competitors Ericsson and Alcatel-Lucent and from hard-charging Huawei — when it’s not fighting an intellectual-property lawsuit launched by, of all vendors, Motorola — NSN isn’t a thriving business. As I have mentioned previously, its joint-venture partners have taken massive goodwill writedowns since forming the business back in 2007.

Digressing for a moment, I want to note that I am not a proponent of joint ventures. Many European companies seem favorably disposed to them, and I understand the underlying reasoning behind them: pool resources, share and mitigate risk, eliminate distraction to one’s core business. Unfortunately, they’re usually unworkable in practice. It’s hard enough getting people from the same company to agree on strategy and to execute successfully. When you have the political machinations inherent in a joint venture, well, the job becomes nearly impossible.

Getting back on track after that brief digressive detour, NSN is in a tough spot.

How tough became clear to me after I read an article in the Wall Street Journal yesterday. Neither Nokia nor Siemens wants to continue participating in the joint venture, but they can’t find a way out. It’s as if Jean-Paul Sartre has rewritten No Exit and staged it in a boardroom. Hell is having to deal with other people in a joint venture.

Thoma Bravo Sees Promise in SonicWALL’s UTM Plans

A reader asked me to comment on the acquisition of SonicWALL, so that’s what I’ll do now. Yes, I sometimes take requests, just like a washed-up lounge lizard.

The announced transaction has been well documented in the business and trade press. An investor group led by private-equity firm Thoma Bravo, and comprising the Ontario Teachers’ Pension Plan, will acquire SonicWALL in a deal worth approximately $717 million. SonicWALL shareholders will receive $11.50 per share in cash, a 28-percent premium over Wednesday’s close.

The deal already is being challenged by law firms alleging that SonicWALL and its board of directors breached fiduciary duties by agreeing to the proposal before diligently seeking an offer that would have provided better value to shareholders.

I don’t want to step into that fray, because it’s an inherently subjective debate based on market estimates from analysts who might or might not have applied accurate assumptions, methodologies, and statistical models. I have no idea how some analysts arrive at their forecasts — some perform thorough channel checks and build intricate spreadsheets, while others perform Santeria rituals with live chickens on neighborhood baseball diamonds under the cover of darkness.

I think you take my point. That said, I will note that the premium offered looks at least superficially attractive. What’s more, the fevered response to it from the wealth-redistribution agents of the legal profession tells you that SonicWALL is an asset that is not bereft of hope and promise.

Indeed, SonicWALL is a strong UTM-firewall and point-product security vendor in the SMB/SME space and across a number of vertical markets, including government, education, and healthcare. The company has built a strong channel presence, and its channel partners generally have a favorable view of the company.

In its latest quarter, just before this acquisition hit, its results did not suggest obvious signs of distress. You can do the math and employ your multiples based on those numbers, but this deal is about what the buyers think the company is worth going forward, not on what the company has done historically. My point regarding the recent financial results, though, is that SonicWALL’s wheels were not falling off.

SonicWALL faces a lot of competition in an Internet-security market that is consolidating on multiple fronts. Security functionality is consolidating, as evidenced by jack-of-all-trades UTM boxes from the likes of Fortinet and SonicWALL; and the market is consolidating, too. Bigger vendors are buying point-product purveyors in attempts to become one-stop shops for the security needs of SMEs and large enterprises alike.

That’s why SonicWALL’s management chose to do this deal. Thoma Bravo not only brings money to the table, but also a potentially coherent plan as to how SonicWALL fits into its existing stable of Internet-security and infrastructure companies. In previous transactions, Thoma Bravo has acquired security-management firm Attachmate, application and database-tool vendor Embarcadero Technologies, and authentication vendor Entrust. Conceivably, SonicWALL will benefit from access to this technology ecosystem and to its sales channels.

Meanwhile, Thoma Bravo saw considerable growth potential in SonicWALL. The vendor holds its own in the SSL VPN market, where it has about a 20-percent share, but the real promise is in UTM, which really is the next-generation firewall.

According to Frost & Sullivan, the UTM market was worth nearly $2 billion in 2009. The market-research firm expects UTM growth to increase through 2010 and 2011 before moderating in subsequent years.  Nonetheless, if the market researchers are right, the UTM space will reach revenues of $7 billion in 2016. With SMEs and distributed enterprises expected to account for the vast majority of those sales, SonicWALL is well placed to benefit.

This is where we have to come back to the competition, though. The company faces not only Fortinet, which rode to an IPO on its UTM exploits, but also Internet-security heavyweights such as Cisco, Juniper, and, to a lesser extent, Check Point.

One factor that could work in SonicWALL’s favor is that Cisco doesn’t seem as focused on Internet security as it has been. Not only has Cisco suffered from component shortages that deferred and cut into sales of its ASA boxes, but the Internet-gear colossus seems distracted by shinier, glossier market opportunities. Cisco also is less focused on serving SMEs than on catering to its large-enterprise and service-provider customers.

Looking ahead to the changing security demands occasioned by increasing virtualization and the adoption of cloud computing, SonicWALL is developing a new security God-box architecture under an Austin Powers-like moniker, Project SuperMassive. The company describes it as a “next-generation security platform and technology capable of detecting and controlling applications, preventing intrusions, and blocking malware at up to 40 Gbps without introducing latency to the network.”

According to SonicWALL, Project SuperMassive will implement a patented Reassembly-Free Deep Packet Inspection (RFDPI) engine to “provide increased insight into inbound and outbound network content without compromising security or performance.” SonicWALL says its new technology will intercept network threats that come from “anywhere and everywhere” and “scan everything.”

It all seems impressive, but the proof is in the pudding, or — in this case — the UTM. However it turns out, Thoma Bravo is buying a company with no shortage of technological vision.

As a postscript to this note, I will say that HP bears watching in the space. It’s possible, though by no means certain, that HP will acquire a vendor such as Fortinet to fill a gap in its HP Networking security portfolio.

What’s Behind Microsoft’s Patent-Licensing Deal with HTC?

Jared Newman of PC World expounds on two possible scenarios behind Microsoft’s agreement to license unspecified patents to handset vendor HTC for use with that company’s Android-based smartphones.

Quoting directly from Newman’s article:

Here are two possible scenarios behind the HTC-Microsoft agreement:

The first is a conservative view. HTC’s phones may infringe on Microsoft patents. Rather than engage in two legal battles at once, HTC quickly agreed to license Microsoft’s patents before Redmond went after it. This spares HTC from another attack in court, while giving Microsoft a sort of insurance plan on HTC’s increasingly popular Android phones along with securing royalties.

The second possibility is more intriguing. Microsoft is throwing HTC a life preserver, letting the phone maker use Microsoft patents as a way to fend off Apple and its iPhone. I see it as an escape plan if HTC’s case against Apple goes south. If the possibility of a court-ordered injunction against HTC Android phones becomes real, HTC could simply say it’s using Microsoft’s patents instead, adjusting the design of its phones accordingly. This assumes that there’s overlap between Apple’s and Microsoft’s smartphone patents, and we don’t know because Microsoft didn’t get into details.

There is a third scenario, though, and it was mentioned in an IDG News Service item that quoted Francisco Jeronimo, an IDC research manager. To wit:

The fact that HTC, Samsung and Sony Ericsson also make Windows phones may make any discussions with Microsoft easier to resolve, according to Francisco Jeronimo, research manager at IDC. He said he wouldn’t be surprised if the vendors can get discounts related to how they are going to push devices based on Windows Phone 7.

Indeed, I think we have a winner.

While HTC can expect no mercy from Apple and its patent lawyers regarding alleged infringements occasioned by the former’s Google Android handsets, Microsoft is a different beast entirely. As I’ve said before, Google stands to make its mobile-platform gains at Microsoft’s expense, not at Apple’s. That’s because Google and Microsoft both count on patronage from handset vendors that license their mobile operating systems. Apple, as a vertically integrated player (providing operating system, handset, and online applications and content) doesn’t need handset vendors. It is its own handset vendor.

Consequently, Microsoft and Google are direct mobile competitors in a way that neither competes against Apple. In the battle between Microsoft and Google for the affections of handset vendors, it’s a zero-sum game. If a handset vendor, such as Motorola, defects from Microsoft to the Google camp, that’s lost business for Microsoft, and a lost service conduit to consumers.

What’s Microsoft to do? Some of the handset vendors — HTC, Samsung, Sony Ericsson — are hedging their bets, with feet in both camps. Microsoft wants to keep their business. To do so, it will be inclined to use every instrument and mechanism at its disposal, carrots and sticks. The threat of patent-infringement lawsuits might be a compelling stick to wield, just as sweet deals on patent licensing, with certain strings attached, might represent a tasty carrot.

It isn’t difficult to envision a Microsoft negotiating team making the following pitch to HTC: “You’re infringing on our patents with those Android-based handsets, and we intend to rectify the situation. Rather than pursue litigation that nobody wants, we’re willing to give you a great licensing deal . . . on the condition that you continue to develop and effectively market Microsoft-based handsets. What do you think?”

That’s the basic outline, anyway. The specifics of the deal might look a little different, but the essential idea is that Microsoft uses patents and litigation as bargaining chips to keep handset vendors in the Windows Phone 7 Series stable.

Fascinating History Behind Huawei’s China Threat to 3Com

Before I dig into the meat of this post, I want to make one thing clear: I have nothing against 3Com. I don’t “hate” the company, as one commenter once charged, nor do I have any personal animosity toward those who lead it.

3Com is an interesting story, though. It’s a company that began its existence as a networking pioneer, an early innovator, and a classic American success story. Over time, it changed tack and reinvented itself repeatedly, variously targeting SMB markets, the enterprise (more than once), consumers, and even mobile devices (it owned Palm for a short time after its acquisition of U.S. Robotics in 1997).

Lately, 3Com has become primarily a Chinese vendor, though it retains an American facade. It made the transformation as a result of its now-defunct partnership with Huawei, a Chinese network-equipment vendor that has grown into a market leader worldwide as a purveyor of wireless-network gear.

What happened during the 3Com-Huawei partnership, which spawned a joint venture called H3C (Huawei-3Com), is fascinating. 3Com might be a microcosm of wider change occurring throughout the technology industry, as the tectonic plates of economic opportunity shift from west to east.

At the time the H3C joint venture was formed, I thought Huawei would get the better of the deal, learning what it could from the American company before moving on to its next conquest. That wasn’t exactly what happened, though.

While Huawei clearly benefited from the relationship, 3Com did, too. Before the H3C partnership, 3Com was adrift, seeking to reinvent itself yet again. The Huawei lifeline came just in time, and it gave 3Com a new lease on life.

After the relationship ran its course when the U.S. government discouraged Bain Capital from pursuing an acquisition of 3Com, with Huawei as a minority stakeholder, 3Com bought out Huawei’s 49-percent stake in H3C. That gave 3Com a Chinese presence, not only government and enterprise customers, but also a large engineering team that gave it a means of developing a broad portfolio of standards-based, cost-effective networking gear that could be sold not only in China but worldwide. 3Com’s “China-out” strategy was formulated, ultimately leading to where it finds itself today.

3Com’s presence in China, and particularly its engineering team, made it attractive to HP, whose pending acquisition of the company awaits approval from China’s Ministry of Commerce (MOFCOM).

Past is prologue, which is why I provided the foregoing historical overview. Now, let’s look at what’s happening how.

3Com filed its quarterly 10-Q with the U.S. Securities and Exchange Commission (SEC) yesterday. There are accounting changes, references to unresolved litigation, and mention of acquisition-related costs and a potential termination fee ($99 million) that could be incurred if the HP deal is derailed; but arguably the most compelling part of the document is a discussion of the competitive threat posed by Huawei.

The reference to Huawei comes just after 3Com’s cites risks related to sales in China. 3Com says: “We are significantly dependent on our China-based segment; if it is not successful we will likely experience a material adverse impact to our business, business prospects and operating results.”

The context here is that 3Com sales through Huawei in China are plummeting, and 3Com is being forced to compensate for the revenue erosion. It’s having a difficult time offsetting the lost revenue, as Huawei not only stops selling 3Com’s H3C gear but sells gear of its own into H3C’s installed base.

Quoting from the 10-Q:

In China, we face competition from domestic Chinese industry participants, and as a foreign-owned business may not be as successful in selling to Chinese customers, particularly those in the public sector, to the extent that such customers favor Chinese-owned competitors.

We expect that a significant portion of our sales will continue to be derived from our China-based sales region for the foreseeable future. As a result, we are subject to economic, political, legal and social developments in China and surrounding areas; we discuss risks related to the PRC in further detail below. In addition, because we already have a significant percentage of the market share in China for enterprise networking products, our opportunities to grow market share in China are more limited than in the past. Our China-based sales region has experienced growth since its inception in part due to the growth in China’s technology industry, which may not be representative of future growth or be sustainable. We cannot assure you that our China-based sales region’s historical financial results are indicative of its future operating results or future financial performance, or that its profitability will be sustained or increased.
Given the significance of our China-based sales region to our financial results, if it is not successful our business will likely be materially adversely affected.

If, as expected, Huawei Technologies, or Huawei, continues to significantly reduce its business with us, our business results will be materially adversely affected if we cannot increase other business to offset the decline.

We historically have and currently derive a material portion of our sales from Huawei, which formerly held a significant investment in our H3C subsidiary. In the three months ended February 26, 2010, which includes results from our China-based sales region’s December 31, 2009 quarter, Huawei accounted for approximately 7 percent of the revenue for our China-based sales region and approximately 4 percent of our consolidated revenue. Huawei’s percentage of our China-based sales region’s revenues has been trending downward from 46 percent during the 3 months ended November 30, 2006, to the current level. This decrease has been accelerating. We expect Huawei to continue to reduce its business with us and we believe that its purchases in absolute dollars will likely continue to decrease significantly. Huawei does not have any minimum purchase requirements under our existing OEM agreement, which expires in November 2010. We believe Huawei has begun to sell, and likely will continue to sell, internally-developed networking equipment with respect to some of the products it formerly purchased from us. We further believe Huawei also has access to other networking equipment vendors that sell products comparable to our solutions. If and to the extent any of these events occur and/or continue, it will likely have an adverse impact on our sales and business performance. In order to minimize any adverse impact on our results from any decreased sales to Huawei, we need to successfully execute on our business strategies including, without limitation,

More on Huawei follows subsequently:

As Huawei expands its operations, offerings and markets, there could be increasing instances where we compete directly with Huawei in the enterprise networking market. As a significant customer of our China-based segment, Huawei has had, and continues to have, access to H3C products for resale. This access enhances Huawei’s current ability to compete directly with us both in China and in the rest of the world. We risk competition from enterprise products that Huawei internally develops and markets or sources from our equipment manufacturer competitors. Huawei has historically sold our networking products to carrier customers (who purchase for themselves and their own enterprise customers). We believe Huawei sells internally developed products to meet carrier demand for these products and it is possible Huawei may also use these products to market and sell more directly to enterprise customers in the future. Huawei is not bound by any contractual non-competition obligations with us. We also sell carrier class products in China through our direct-touch sales force in competition with Huawei and other carrier market equipment providers.

Huawei maintains a strong presence within China and the Asia Pacific region and possesses significant competitive resources, including vast engineering talent and ownership of the assets of Harbour Networks, a China-based competitor that possesses enterprise networking products and technology. We cannot predict the extent to which Huawei will compete with us. If Huawei increases its competition with us, or if we do not compete favorably with Huawei, it is likely that our business results, particularly in the Asia Pacific region and specifically in China, will be materially and negatively affected.

Habour Networks, the Huawei-owned enterprise-networking company mentioned above, isn’t a household name in the West. In China, though, it was a formidable competitor before Huawei acquired it in 2006, at about the time Huawei was considering divestiture of its 49-percent stake in H3C. Harbour had been started by former Huawei executives and engineers, looking to replicate the best practices of their former employer. Some contend it had originally been intended as a “spin-in,” but conflict between the companies ensued, complicating matters.

In 2005, prior to the acquisition, Huawei warned Harbour that it was considering litigation related to alleged IPR infringements. The acquisition, said to be valued at approximately $212 million, negated the need for lawsuits and also gave Huawei a vehicle to compete against its soon-to-be-former joint venture with 3Com.

Siemens apparently had discussed an acquisition of Harbour before Huawei’s successful bid. At the time of the purchase, Warburg PIncus was said to be Harbour’s largest shareholder.

3Com’s sales in China are under full-frontal assault from Huawei and other indigenous Chinese vendors. Many of 3Com’s Chinese customers are government agencies and departments, and they will — following China’s “indigenous innovation” dictates — favor Chinese vendors when they make purchase decisions.

Before the HP acquisition, 3Com could claim to be more Chinese than American, hence having a fighting chance of retaining favor in key accounts targeted by Huawei. Now, though, as the property of HP, 3Com’s loss of business in China is likely to accelerate. That might seem paradoxical to Americans — after all, the assumption is that HP’s brand and corporate heft should boost 3Com’s sales prospects, right? — but different rules apply in China.

Presuming the acquisition of 3Com is approved by China’s MOFCOM — and 3Com and HP still retain hope that the deal will close before the end of April — HP will get a cost-effective engineering team, one that can help it develop competitively priced switches and routers to pressure Cisco’s margins and help it compete for price-sensitive enterprise accounts worldwide. That said, HP should not count on maintaining the substantial market share in China that 3Com built through its H3C joint venture with Huawei.

That, literally, is history.

Search Company Buys Into Waste-Management Business

I was reminded of the bizarre tale of Liberate Technologies today when I read that Copernic, operator of the Mamma.com search engine, will pay approximately C$3.5-million dollars in cash and stock to get into the waste management equipment business.

Really, you couldn’t make up this stuff.

Apparently Copernic has signed a letter of intent with Fanotech Manufacturing Group to buy three of its subsidiaries: Fanotech Enviro Inc., Fanotech Waste Equipment Inc, and FanoCore. The companies supply garbage trucks and trash bins, among other refuse-related products.

I wonder whether Mark Cuban approves.

Nortel Ponders Fate of LTE Patents

Not much remains of the once-proud Nortel Networks, but it retains a portfolio of 4,000 LTE and other wireless patents that have market value of as much as $1 billion, according to analyst estimates.

For a time, Nortel considered keeping the patents. Some within the disintegrating, insolvent company envisioned that it could be recast as a patent troll, staffed with more lawyers than engineers, punitively pursuing companies perceived to have encroached on its intellectual-property rights.

It still might choose that option, but other possibilities loom.

According to report in the Globe and Mail, Nortel is “exploring strategic alternatives to maximize the value” of the patents. The company has yet to decide how it will dispose of the patents, but alternatives apparently include an auction of the patents, a joint venture with a new partner, or long-term licensing agreements with wireless companies. That last option is a euphemism for becoming a patent troll.

What remains of the Nortel braintrust might be disinclined to auction the patents, but the Globe and Mail says the company faces mounting pressure from anxious creditors, suppliers, and pensioners who want all the assets divested.

While Nokia Corp. and Telefon AB LM Ericsson are said to have privately expressed interest in acquiring the patents, RIM bears watching in this context. Nortel’s LTE patents were and are of great interest to the BlackBerry purveyor.

Unlike the other potential acquirers, RIM can play the Canadian card to put pressure on the country’s federal government, arguing that such forward-looking intellectual property should remain in Canadian hands.

Just when we thought all the juice had been squeezed from the Nortel lemon, there might be one last lemonade sale.

Will Google’s Sweetened Bid for On2 Close the Deal?

Here and elsewhere, On2 shareholders dissatisfied with Google’s takeover offer for the video-compression company have campaigned against the proposed acquisition.

They’ve actually done more than that, alleging improper and untoward conduct by On2 principals and board members, some of whom were deemed to have gotten too cozy with Google and not open enough to offers from other potential acquirers.

It has been an ugly episode, for On2 and for Google, which never misses an opportunity to burnish its self-proclaimed corporate image as a non evildoer. While it hasn’t been established that Google perpetrated any dubious deeds in the context of its pursuit of On2, the ensuing charges and countercharges were unedifying. It could have gone better, and perhaps it would have done if Google had made a higher offer at the onset.

Figuring that late is better than never, Google has decided to sweeten its bid for On2. In what it described today as its “final offer,” Google proposes to give On2 stockholders an extra 15 cents in cash for every On2 share they hold, plus the originally proposed exchange of 0.001 shares of Google Class A common stock for each share of On2 stock.

Said On2 and Google in a statement:

“By increasing the consideration offered to On2’s stockholders by an additional $0.15 per share in cash, On2’s stockholders will receive additional value for their On2 common stock that Google and On2 believe better reflects the value that On2’s stockholders would have received had the acquisition closed closer to the time of its announcement in August 2009. This increase in the consideration that Google is offering to On2’s stockholders constitutes Google’s final offer.”

With the modified terms in effect, the deal would be worth about $134 million, up 20 percent on an initial arrangement valued at about $107.4 million. A large number of On2 shareholders weren’t happy with that offer — or how it came about — and they rebuffed it forcefully, compelling the company to twice postpone a shareholder meeting designed to confer official approval on the deal.

The company’s board, which has approved of the sale to Google all along, recommends acceptance of the revised bid. Shareholders will have an opportunity to pass judgment on the deal at a meeting on February 17.

Will they be favorably disposed to the sweetened offer? Will this meeting, unlike the other ones, actually take place? I’d like to hear directly from On2 shareholders, especially those — and there were many of them — who were opposed to the initial bid.

Ciena’s Tweaked Terms Deliver Victory Over Desperate NSN for Nortel’s MEN Assets

On the surface, it appears that the bankruptcy judge presiding over the kerfuffle between Nokia Siemens Networks (NSN) and Ciena for the privilege of owning Nortel’s Metropolitan Networks (MEN) assets made his decision purely on legal and procedural grounds.

Then again, maybe not.

As reported by Bloomberg, U.S. Bankruptcy Judge Kevin Gross who is overseeing the liquidation of Nortel’s U.S. assets, ruled yesterday that NSN’s $810 million after-the-buzzer offer should be rejected.

Ciena, which formally had submitted the top auction bid of $759 million in cash and convertible notes, argued successfully that it already had begun work on combining the two companies subsequent to the November 22 auction.

Nortel had sided with Ciena in the post-auction fracas, asserting that allowing a bid after the conclusion of the auction would disrupt the sale of the company’s remaining assets – not that there are many in the corporate garage left to sell.

Even though the $810-million bid from NSN was too late, it wasn’t too little. At face value, and even taking into account a $21-million compensatory breakup fee Nortel would have been obligated to fork over to Ciena, the NSN bid appeared to represent a better deal for Nortel creditors.

What’s interesting is that the Ciena offer appears to have been tweaked yesterday in a hallway outside the courtroom. Quoting from a Reuters article:

That set up Wednesday’s fight in court, with Nokia Siemens and some creditors arguing the auction should be reopened, in part because Ciena’s convertible securities were overvalued.

After roughly seven hours of argument, testimony and cross-examination, Nortel’s attorney said his team had a reached a deal in the hallway outside the court that would lead to the withdrawal of the last major objection.

Withdrawal of the objections made that a near-certainty later on Wednesday.

U.S. bankruptcy court in Delaware and a Canadian court cleared the deal after simultaneous hearings, Ciena and Nortel said in separate statements.

To clear the last objection, Ciena agreed to change the pricing on its convertible securities under certain conditions.

“This increases the value to the estate,” said Jennifer Feldsher, an attorney with Bracewell & Giuliani, which was representing creditor Matlinpatterson Global Investors. “We withdraw our objection.”

Ciena’s pricing change to the convertible securities included in its bid appeared to represent a modification of its formal offer. The move triggered the ire of an attorney representing Nokia Siemens Networks. Quoting again from the Reuters report:

Nokia Siemens’ attorney, Gregg Galardi, was critical of the deal saying it appeared to allow Ciena to change its bid and Nokia Siemens should be allowed to as well.

“It sounds like there is a material change to the bid,” Galardi of Skadden, Arps, Slate, Meagher & Flom said. “If that doesn’t reopen the auction, I don’t know what does. We stand by that $810 million bid.”

Was it a material change to the bid? If so, would it have been grounds to reopen the auction?

Don’t ask me. Those are legal questions, and I have difficulty distinguishing torts from tarts. However, I do welcome the learned opinions of the razor-sharp legal minds that frequent this blog occasionally.

That debate might be fun to have, but it would be entirely academic. NSN has conceded defeat, and Ciena is getting Nortel’s MEN business, even if the stock market and many of its shareholders wish otherwise.

As for NSN, the joint venture between Nokia and Siemens seems as confused and conflicted as ever, even if its new CEO is talking a big game about his plans for market-share gains and world domination.

Putting aside yesterday’s courthouse dustup, how could NSN fail to put its best collective foot forward during the actual auction process? How badly disorganized does the company have to be if it can’t be ready with its auction strategy before and during, you know, the actual auction?

I wrote before that the timing didn’t favor an NSN bid for Nortel’s MEN assets. Even though NSN scrambled in conjunction with private-equity concern One Equity Partners, which manages $8 billion in assets for JPMorgan Chase & Co., it is now evident that this was a last-minute, slapdash effort. It makes one wonder about the strategic coherence behind everything else that NSN is cobbling together.

Meanwhile, we read that Siemens today took an impairment charge of €1.634 billion for its continued involvement with NSN. Considering that Siemens AG has reduced its direct exposure to information technology, and that it has said IT is “not a great place to be,” one might question how long it will continue to take charges on a joint venture that seems strategically misaligned with its own big-picture objectives.

My supposition is that the recent emphasis on expanding and extending NSN into cleantech and renewable-energy solutions might have been, at least partly, a concession to Siemens, which has a large energy-related business and considerable expertise in that area. At its core, though, NSN remains a telecommunications concern, and that’s not where Siemens sees its future.

Seemingly flailing and swaggering at the same time, NSN lurches unsteadily into an uncertain future.

Skype Settlement Said to be Imminent

Although a settlement seems to be in place — with Skype founders Niklas Zennstrom and Janus Friis receiving a 10-percent equity stake in Skype, plus two board seats, and with Index Ventures and Mike Volpi getting banished from the deal — a formal announcement including all the pertinent details has yet to be delivered by the legal gods to us mere mortals.

It shouldn’t be long, though.

Network World Reprises Volpi’s Medley of Email Hits

For those who cannot get enough of the intrigue, scheming, and shenanigans surrounding the boardroom-to-courtroom-to-boardoom battle for the ownership of Skype, Brad Reese at Network World reproduces a medley of Michael Volpi’s greatest email hits.

Thrill to Volpi’s message about “getting the father of SIP to jump ship” from Cisco. Enjoy his follow-up message to Egon Durban, managing director at private-equity firm Silver Lake, regarding the need to fill out a SIP engineering team with five or six solid VoIP software engineers. Marvel at Volpi’s disparagement of former colleagues and Skype-deal confederates.

Moreover, consider that he was writing all these email hits while still employed as the CEO of a company (Joost) that was founded and run by the same duo, Niklas Zennstrom and Janus Friis, who founded Skype before selling it to eBay and who entertained hopes of owning it again. Also ponder that much of the same underlying p2p software used at Joost, at least originally, also served as the architectural foundation for Skype.

Finally, consider that Volpi was said to have led and been involved in an architectural transition at Joost that saw the video-sharing site move from the p2p foundations on which it was based — using the same Joltid technology that was licensed by Skype — to a client-server architecture that employed Flash-based web clients at the end points.

At minimum, there would appear to be superficial similarities between the architectural overhaul that had occurred at Joost and what Volpi proposed for Skype.