Category Archives: Siemens

Bad and Good in Avaya’s Pending IPO

We don’t know when Avaya will have its IPO, but we learned a couple weeks ago that the company will trade under the symbol ‘AVYA‘ on the New York Stock Exchange.

Long before that, back in June, Avaya first indicated that it would file for an IPO, from which it hoped to raise about $1 billion. Presuming the IPO goes ahead before the end of this year, Avaya could find itself valued at $5 billion or more, which would be about 40 percent less than private-equity investors Silver Lake and TPG paid to become owners of the company back in 2007.

Proceeds for Debt Relief

Speaking of which, Silver Lake and TPG will be hoping the IPO can move ahead sooner rather than later. As parents and controlling shareholders of Avaya, their objectives for the IPO are relatively straightforward. They want to use the proceeds to pay down rather substantial debt (total indebtedness was $6.176 billion as of March 31), redeem preferred stock, and pay management termination fees to its sponsors, which happen to be Silver Lake and TPG. (For the record, the lead underwriters for the transaction, presuming it happens, are J.P. Morgan, Morgan Stanley, and Goldman Sachs & Company.)

In filing for the IPO, Avaya has come clean not only about its debts, but also about its losses. For the six-month period that end on March 31, Avaya recorded a net loss of $612 million on revenue of $2.76 billion. It added a further net loss of $152 million losses the three-month period ended on June 30, according to a recent 10-Q filing with the SEC, which means it accrued a net loss of approximately $764 million in its first three quarters of fiscal 2011.

Big Losses Disclosed

Prior to that, Avaya posted a net loss of $871 million in its fiscal 2010, which closed on September 30 of 2010, and also incurred previous losses of $835 million in fiscal 2009 and a whopping $1.3 billion in fiscal 2008.

Revenue is a brighter story for the company. For the one months ended June 30, Avaya had revenue of more than $2.2 billion, up from $1.89 billion in the first nine months of fiscal 2010. For the third quarter, Avaya’s revenue was $729 million, up from $700 million in the corresponding quarter a year earlier.

What’s more, Avaya, which bills itself as a “leading global provider of business collaboration and communications solutions,” still sits near the front of the pack qualitatively and quantitatively in  the PBX market and in the unified-communications space, though its standing in the latter is subject to constant encroachment from both conventional and unconventional threats.

Tops Cisco in PBX Market

In the PBX market, Avaya remained ahead of Cisco Systems in the second quarter of this year for the third consecutive quarter, according to Infonetics Research, which pegged Avaya at about 25 percent revenue share of the space. Another research house, TeleGeography, also found that Avaya had topped Cisco as the market leader in IP telephony during the second quarter of this year. In the overall enterprise telephony equipment  market — comprising sales of PBX/KTS systems revenues, voice gateways and IP telephony — Cisco retains its market lead, at 30 percent, with Avaya gaining three points to take 22 percent of the market by revenue.

While Infonetics found that overall PBX spending was up 3.9 percent in the second quarter of this year as compared to last year, it reported that spending on IP PBXes grew 10.9 percent.

Tough Sledding in UC Space

Meanwhile, Gartner lists Avaya among the market leaders in its Magic Quadrant for unified communications, but the threats there are many and increasingly formidable. Microsoft and Cisco top the field, with Avaya competing hard to stay in the race along with Siemens Enterprise Networks and Alcatel-Lucent. ShoreTel is gaining some ground, and Mitel keeps working to gain a stronger channel presence in the SMB segment. In the UC space, as in so many others, Huawei looms as potential threat, gaining initial traction in China and in developing markets before making a stronger push in developed markets such as Europe and North America.

There’s an irony in Microsoft’s Lync Server 2010 emerging as a market-leading threat to Avaya’s UC aspirations. As those with long memories will recall, Microsoft struck a valuable UC-centric strategic alliance — for Microsoft, anyway — with Nortel Networks back in 2006. Microsoft got VoIP credibility, cross-licensed intellectual property, IP PBX expertise and knowledge — all of which provided a foundation and a wellspring for what Microsoft eventually wrought with  Lync Server 2010.

The Nortel Connection

What did Nortel get from the alliance? Well, it got some evanescent press coverage, a slippery lifeline in its faltering battle for survival, and a little more time than it might have had otherwise. Nortel was doomed, sliding into irrelevance, and it grabbed at the straws Microsoft offered.

Now, let’s fast forward a few years. In September 2009, Avaya successfully bid for Nortel’s enterprise solutions business at a bankruptcy auction for a final price of $933 million.  Avaya’s private-equity sponsors saw the Nortel acquisition as the finishing touch that would position the company for a lucrative IPO. The thinking was that the Nortel going-out-of-business sale would give Avaya an increased channel presence and some incremental technology that would help it expand distribution and sales.

My feeling, though, is that Avaya overpaid for the Nortel business. There’s a lot of Nortel-related goodwill still on Avaya’s books that could be rendered impaired relatively soon or further into the future.  In addition to Nortel’s significant debt and its continuing losses, watch out for further impairment relating to its 2009 purchase of Nortel’s assets.

As Microsoft seeks to take UC business away from Avaya with expertise and knowhow it at least partly obtained through a partnership with a faltering Nortel, Avaya may also damage itself through acquisition and ownership of assets that it procured from a bankrupt Nortel.

Set-Top Box Logic Doesn’t Hold

I’m not that close to the cable market — though, once upon a DOCSIS moon, I worked for a company that sold transceivers to cable-device vendors — so perhaps I am missing a nuance or subtlety that might have tempered the opinion I am about the express.

Still, I feel relatively confident asserting that Cisco’s acquisition of Scientific Atlanta ranks among the worst buys the networking giant has ever done.

Misstep Followed by Tumble

Yes, the acquisition of Pure Digital Technologies and its Flip video camcorders must rate at the top (or is that bottom?) of the charts. Whereas Cisco paid $6.9 billion for Scientific Atlanta and only $590 million in stock — plus about $15 million in retention-based compensation — for Pure Digital, the former is still lumbering along a wayward path while the latter has been shuttered outright. When an acquired company is shut down with prejudice, as opposed to sold to a third party, a little more than two years after the purchase was announced, well, you have to count it as a misstep — perhaps followed by a severe tumble down a long staircase.

That said, Scientific Atlanta also has fallen well short of the winning mark for Cisco, and its future as a going concern is murky. While Cisco yesterday announced that it has sold a Scientific Atlanta manufacturing facility in Juarez, Mexico, to Foxconn Technology Group, Cisco apparently will remain in the consumer-facing cable set-top business, at least for now.

Puzzling Decision

That’s a puzzler for at least a couple reasons. First, commercial prospects for the cable set-top box in developed markets are uncertain at best, as the devices increasingly are rendered less valuable — and potentially obsolete — by the proliferation of Internet-connected televisions and mobile devices such as smartphones and tablets, all of which detract from the consumer-controlling power of the cable box. In developing markets, moreover, other vendors, including a number of Chinese and Asian players, are getting more than their share of the cable set-top market in jurisdictions where it’s still a growing business.

Even Cisco itself has voiced ambivalence about the future of the set-top box.

Oh, there’s no question cable MSOs want to keep the boxes in subscribers’ homes for as long as possible. There’s also no doubt that vendors, such as Cisco, will try to adapt the boxes for new purposes and applications. Still, consumers ultimately will call the tune, and many MSOs seem to acknowledge that reality, looking to jack up the price of bandwidth to compensate for any loss of control as media-content gatekeepers.

Zeus Kerravala, an analyst with Yankee Group Research Inc., has put forth the following argument in favor of Cisco keeping Scientific Atlanta:

 “Everybody looks at set-top boxes and says Cisco should cut the set-top box. But that’s often part of a bigger sale to a cable company, with switches and routers. It would be detrimental to their relationships.”

Questioning the Logic

I question that line of reasoning. Several years ago, it might have had some merit, but circumstances have changed. I don’t think Cisco needs to be in the consumer-facing part of the cable business to succeed as a vendor of switches and routers to MSOs.

An appropriate analogy, though somewhat inverted, is to Nokia and its Nokia Siemens telecommunications-equipment joint venture. Once upon a time, Nokia realized value, through mutual reinforcement, in selling both networking gear and handsets to its carrier customers. Now, well, not so much. Ever since the advent of the iPhone, consumers rather than carriers drive handset selection. Tossing a bunch of handsets that nobody wants into a telecommunications-equipment deal isn’t going to seal the bargain.

Sell . . . Before It’s Too Late

I would argue that the same separation will occur, if it already hasn’t, in the cable world. Increasingly, as consumers resist set-top boxes and choose to consume their content through other devices, it won’t matter that Cisco can offer both network infrastructure and set-top boxes. The value propositions will have to stand on their own.

So, I will offer Cisco some admittedly unsolicited but free advice: Get out of the cable set-top box business. It’s more pain that it’s worth, it’s not your forte, and you need to focus your efforts and resources on bolstering other parts of your business.

Besides, Huawei might take the business off your hands for a pretty penny. You just have to persuade the US government to let them have it.

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.

Components Shortages Affecting Vendors Worldwide

At the moment, components shortages seem to be pervasive in the technology industry. Vendors large and small, throughout most of the world, have been affected by them to greater or lesser degrees.

The problem appears to be with us for a while. To be best of my knowledge — and I will concede at the outset that my research hasn’t been definitive — vendors everywhere in the world are having difficulty sourcing adequate numbers of many types of components. The only exception is China, where vendors in telecommunications, cleantech, and other fields have not reported that same component-sourcing difficulties that have hobbled their counterparts in Europe, North America, and other parts of Asia.

That doesn’t necessarily mean that Chinese companies aren’t affected by components shortages. All it means is that they haven’t reported them, at least in the English-speaking media I’ve perused. Still, it’s a development that bears watching. In that China does not ascribe to the tenets of unfettered capitalism, it sometimes operates according to a unique set of rules.

Today’s component shortages span various semiconductor types, including but not limited to DSPs, FETs, diodes, and amplifiers. Vendors of solar inverters, particularly those based in Europe, also have been affected.

Meanwhile, Reuters reports that a shortage of basic electrical components could last into the second half of 2011, limiting the ability of telecommunications-equipment manufacturers to respond to improving market demand.

Reuters reports that memory chips and other fundamental components such as resistors and capacitors are in short supply after their makers slashed output, fired staff, put equipment purchases on hold or went out of business during the recession.
The shortages already have been blamed for weaker-than-expected results last quarter at telecommunications-equipement vendors Alcatel-Lucent and Ericsson, which really don’t need the added grief.

Alcatel-Lucent blamed components shortages for a large loss that it posted in its first fiscal quarter. Alcatel-Lucent’s CEO Ben Verwaayen said the said the shortages involved “everyday” low-cost components. He explained that most components come from China, where the manufacturing industry hasn’t been revamped since major cuts that followed the severe global downturn. 

We already know that the supply-chain issues that afflicted Cisco’s channel partners and customers were blamed partly on component shortages.
What’s more, Dell partly blamed shortages and higher costs of components, including memory, for its inability to maintain gross margins during its just-reported quarter.

And AU Optronics, Taiwan’s second-ranked LCD manufacturer and a supplier to Dell and Sony, reported that an LCD panel shortage is likely to last into the second half of this year.

By no means are those the only vendors affected. You only have read the recent 10-Qs or conference-call transcripts of companies involved in computer networking, telecommunications gear, personal computers, smartphones, displays, or cleantech hardware to understand that components shortages are nearly everywhere.

I just wonder — and I make no accusation in doing so — whether Chinese manufacturers are as affected by the shortages as are their competitors in other parts of the world.

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.

Cisco’s Tandberg Acquisition Officially Approved, Dance for Polcyom Begins

When I first learned of the alleged acquisitive interest Apax Partners was said to have expressed toward Polycom, I dismissed it as nothing more than a media head fake.

Let’s consider: When news of that sort is leaked, it’s made public for a reason. In this context, it seemed, the reason was to bring others to the table. Somebody who has an interest in Polycom being acquired wanted to engender a bidding war for the company. It happens all the time.

There was something else, too. Apax didn’t seem a likely acquirer. Where were the direct synergies with Polycom in Apax’s investment portfolio? Where were the connections between Apax’s people and major vendors in the videoconferencing and unified-communications worlds? The deal didn’t offer enough risk mitigation for Apax; the pieces didn’t fit together.

Even if Apax had wanted to acquire Polycom, I’m not sure it had the conviction or the stomach to conclude the deal at the price Polycom would have commanded.

Now, though, Cisco’s acquisition of Tandberg has been consummated, and Polycom stands exposed. Polycom was Tandberg’s videoconfencing rival, and it’s a company of considerable importance to the UC strategies of more than one vendor.

We must consider the Cisco-Tandberg context, because contrivances like the leaked report of Apax’s interest in Polycom tend not to occur in a vacuum. Who’s supposed to step from the shadows and make a welcome bid, at an appetizing price, for Polycom?

There are a few candidates, including one that already has tipped its hand. That player is The Gores Group, 51-percent owner of Siemens Enterprise Communications. But The Gores Group’s bid was leaked, too, and we have to wonder why. Expect others to enter the picture, publicly or otherwise.

An obvious candidate is Avaya. Even though Avaya has barely digested its acquisition of Nortel’s enterprise business, it might feel as though it cannot let Polycom fall into other hands. In a perfect world, Avaya would not have to pursue Polycom now, immediately after assimilating and integrating Nortel.

Nonetheless, strategic imperatives might necessitate a move. Avaya is backed by the high rollers at Silver Lake, who rarely think small. They might not be willing to pass up the opportunity of taking Polycom off the board.

Who else? Not Dell. I can’t see it happening.

I don’t think HP will make the move, either. It’s got is own telepresence systems already, it’s very close to Microsoft in unified communications, and it wants to leverage Microsoft in the battle against their common enemy, Cisco.

Juniper is a possibility, but the company has signaled that it will grow organically, not through big-ticket M&A. Juniper will stay focused on building its intelligent network infrastructure and try not to get distracted by the action in the M&A casino.

IBM could make a move for Polycom, but I don’t think it will. Microsoft also enters the equation.

Yes, Polycom sells hardware, and Microsoft has steered clear of stepping on the toes of hardware partners such as HP. But there’s a way Microsoft could structure a deal that would be amenable to HP and its other hardware partners. All it takes a little creativity and ingenuity, and Microsoft retains plenty of that commodity on the enterprise side of its business.

If I were making book on which company will acquire Polycom, I’d make Silver Lake-baked Avaya the favorite, with Gores-backed Siemens Enterprise Communications the second choice, Microsoft the third option, with IBM next. Of course, in no way do I encourage illicit gambling on prospective M&A activity.

If you have theory on whether Polcyom will be acquired, and by whom, feel fee to share your thoughts below.

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.

NSN Applies Full Court(s) Press in Late Bid for Nortel MEN Assets

As bankruptcy courts ponder how best to respond to the curveball that Nokia Siemens Networks threw at them in the form of an $810-million all-cash offer for insolvent Nortel’s Metropolitan Ethernet Networks (MEN) business, an article over at the Ottawa Citizen provides a good synopsis of where things stand.

As you might expect in any matter involving Nortel, there are elements of melodrama, tragedy, and farce.

Nokia Siemens Networks (NSN), for example, is claiming that it, and not Ciena, submitted the highest bid at auction. According to NSN, its final unconditional auction bid — offered in conjunction with One Equity Partners, a private-equity concern that manages $8 billion in assets for JPMorgan Chase & Co. — was for$770 million in cash.

NSN also said it tried to adjourn the auction to get expert advice on valuing the Ciena debt offer. According to the Ottawa Citizen, Nortel apparently refused the request for adjournment, putting NSN in what it called “an untenable position.”

Said Barry French, an NSN spokesman:

“We can confirm we have notified the representatives of Nortel’s creditors that we are willing to offer $810 million in cash for the optical networking and carrier ethernet assets of Nortel.”

“Along with our expert advisors, we continue to believe that the convertible notes offered by (Ciena) carry significant risk and should not be valued the same as cash.”

NSN is taking its case not only to the bankruptcy courts, but also to the court of opinion constituted by Nortel’s creditors.

Nokia Siemens Networks to Focus on Market-Share Gains and Reduced Costs

Even though it struck out twice in auction-ring swings for pieces of insolvent Nortel Networks, joint-venture Nokia Siemens Networks (NSN) apparently has devised another plan to improve its fortunes as a vendor of telecommunications-networking gear.

For the past two years, NSN has focused primarily on profitability at the expense of market share. Now, under new CEO Rajeev Suri, the company will switch gears, prioritizing market share ahead of all else. Reuters reports that Suri told Finnish daily Helsingin Sanomat the following:

“In early 2008 we made a strategic decision to focus more on cash flow and profitability than on the market share. Now it’s time to give it up and to focus on the market share.”

What NSN was doing wasn’t working, so a change of strategy doesn’t seem misplaced. Losing competitive ground to Huawei, ZTE, and Ericsson in the wireless-equipment market, NSN had reached a point where different, if not entirely desperate, measures were required.

To gain market share, however, NSN will have to become a different company. Its CEO concedes that the joint venture must position itself as a “cost leader” if it is achieve market-share gains without losing money. The company also agrees that it must become more aggressive with its pricing strategies and marketing.

As with its computer-networking brethren, such as Cisco and HP (now including 3Com), NSN will be turning to lower-cost geographic jurisdictions whenever possible to reduce its operating costs connected to the design, development, and manufacture of its products. One example is the company’s recent decision to produce 3G equipment at its Oragadam facility near Chennai, India, by May 2010.

NSN also apparently is following the Cisco model of seeking “market adjacencies,” though I’m not sure the German-Finnish joint venture would use the same terminology. NSN said Monday that its telecommunications expertise gives it a mandate to offers solutions to partners and customers involved with renewable energy, intelligent power grids, and smart metering.

Said Juhani Hintikka, head of operations and business software at NSN:

“When you look at what is required to manage power grids, or to make full use of unpredictable renewable energy sources such as solar and wind, as well as bring greater transparency to and flexibility to billing, the synergies with the core of our existing telecoms business are obvious.”

As of January 2010, NSN will be restructured from five business units into three: Business Solutions, Network Systems, and Global Services. Efforts related to renewable energy and energy efficiency will be folded into Business Solutions.

The company, in the midst of shedding as many as 5,800 jobs by 2011 — presumably to become leaner and meaner in its quest for increased market share — says its primary business focus remains the telecommunications industry. Like Cisco and others, however, it is looking to enter related growth markets with its products, services, and technologies.