Cisco, Nortel frontrunners in Avaya acquisition rumors

Cisco and Nortel, among others, are named as possible suitors for Avaya, as acquisition rumors swirl around the VoIP mainstay.

This story was updated at 2:30 p.m. May 31.

Cisco and Nortel Networks have been identified by some as prime candidates to scoop up Avaya, as rumors swirl around a potential acquisition of the New Jersey-based VoIP and unified communications vendor.

Speculation about an Avaya buyout intensified this week when the company abruptly delayed an investor conference with no stated reason, and reports indicated that it was negotiating with bidders. Everyone from Nortel and Cisco to Microsoft and Oracle has been named as a potential suitor for Avaya, a company that is small by comparison but packs a large punch with its VoIP solutions.

Still, some industry analysts feel that neither Nortel nor Cisco would benefit by snatching up Avaya, noting that consolidation for consolidation's sake is rarely a good move.

"First of all, Cisco never buys to consolidate markets, they buy to innovate or they acquire market leadership," said Yankee Group senior vice president Zeus Kerravala. "In this case, Cisco is the market leader, and I think they would inherit stuff they really don't need. I think Cisco feels they can achieve market leadership without buying Avaya."

Kerravala pointed to Cisco's past roster of acquisitions, which includes many small companies that help it to innovate and market leaders like WebEx -- purchased recently -- to fuel that innovation.

Nortel, which has been plagued by poor market performance and lack of profitability, seems a more realistic fit. Nortel has recently created a strong push for unified communications, partnering with Microsoft and creating its own solutions for collaboration. Kerravala said, however, that Nortel couldn't benefit much from a consolidation play.

"As for Nortel, merging to consolidate historically hasn't worked in tech," he said. "I think Avaya is a well-run company, much more so than Nortel. In my opinion, trying to integrate two legacy customer bases and two different product lines would be a mess."

Matthias Machowinski, Infonetics Research's directing analyst of enterprise voice and data, agreed, noting that a buyout from either of the networking vendors would just signify continued consolidation in the industry. As it stands, he said, Cisco holds the No. 1 spot in the enterprise VoIP market, followed by Avaya, with Nortel coming in third.

"All Cisco needs to do is keep doing what they're doing," Machowinski said. "Cisco would only be interested in Avaya's services."

As for Nortel, he said, acquiring Avaya would simply eliminate a competitor.

"Nortel has everything Avaya has and more," he said, adding that Nortel would also have to support Avaya's vast user base. In addition, Avaya and Nortel both cover similar geographical areas and their products would overlap. Machowinski instead suggested that a Nortel-Siemens acquisition would make much more sense because Siemens is prominent in other areas, such as EMEA.

Irwin Lazar, principal analyst and program director of collaboration and converges at Nemertes Research, disagreed, noting that both Cisco and Nortel could benefit from an Avaya purchase.

"Cisco would benefit from Avaya's expertise in the contact center space, our research continually shows that Avaya is viewed as a stronger player in the contact center arena than Cisco," he said, adding that Cisco could be interested in Avaya's past purchases of Nimcat Networks, a developer of embedded, peer-to-peer IP communications application software, and Ubiquity Software, maker of software platforms for the development and delivery of SIP end-user applications.

And while Lazar agrees that an acquisition by Nortel would be primarily a consolidation play, he said "Nortel has been pretty vocal about wanting to build out a services model to support its Microsoft agreement. Avaya launched managed services last year, so there's an opportunity for Nortel to leverage Avaya's capabilities."

Kerravala said Microsoft may be the most likely candidate to pick up Avaya, since the software giant is looking to broaden its VoIP and unified communications portfolio.

"If someone buys Avaya, I think having it be someone Microsoft-like, who wants an entry and channel into voice, would get the most bang for the buck," he said. "Adding share to a company whose enterprise business is broken doesn't really fix the problem, it just gives them more share to lose. It's HP-Compaq all over again."

The future for Avaya users, whether or not there is an acquisition, remains uncertain.

"In tech, consolidation should happen by attrition, meaning let Darwinism apply and have the weaker vendors die," Kerravala said. "Simply consolidating businesses doesn't create strong ones, just bigger weak ones. I think Avaya customers would win if say an Oracle or Microsoft buys them. They would lose if a traditional vendor buys them. If it's Cisco, I'm not sure, but that's a scenario I don't see happening."

Machowinski said Avaya users wouldn't suffer in the short term, but he questions whether an acquiring vendor would be able to integrate technologies and support Avaya's product platform throughout the transition, especially since Avaya doesn't address networking technologies like routers and switches, where Cisco and Nortel put much of their focus.

Acquisition by a private equity or investment firm would be the most likely outcome, he said. One firm, Silver Lake, has been described as interested, but even then, what the acquisition would accomplish remains unclear.

Oracle and Microsoft, Kerravala said, are looking to get into VoIP and IP communications, an area where Nortel and Cisco both have a strong focus. Where Nortel and Cisco may use facets of what Avaya could offer, Oracle and Microsoft could see stronger benefits.

"Their motivation to acquire would be to get the technology and build on it," Kerravala added. "Like I said, acquisitions for innovation tend to work out better than for consolidation."

Overall, Machowinski said, it will be interesting to see what shakes out, especially since Avaya is already pretty well positioned in the market and is not considered "distressed" enough to be a prime target for a takeover.

"It's certainly an interesting development," he said. "I certainly don't see Cisco going forward with it, especially since Cisco and Avaya are pretty fierce in their competitiveness. You have to wonder if you could ever marry the two cultures at this point."

Dig deeper on IP Telephony Systems

Pro+

Features

Enjoy the benefits of Pro+ membership, learn more and join.

0 comments

Oldest 

Forgot Password?

No problem! Submit your e-mail address below. We'll send you an email containing your password.

Your password has been sent to:

-ADS BY GOOGLE

SearchMobileComputing

SearchNetworking

SearchTelecom

SearchITChannel

SearchEnterpriseWAN

SearchExchange

Close