Polycom's deal with HP packs a strategic blow to Cisco

Polycom's deal with HP looks like a win-win for both Polycom and HP, but how will this deal impact Cisco, Juniper Networks, Vidyo and Radvision?

This month Polycom and Hewlett-Packard (HP) jointly announced that Polycom will acquire HP's Visual Collaboration

Business Unit, including HP's Halo telepresence solution and related managed services. The rumored valuation of the Polycom/HP deal is $89 million, which is a small number for such large companies. Vice President and GM of Cisco's UC business unit, Laurent Philonenko, mockingly tweeted, "You get what you pay for."

Exactly how much Polycom actually paid is still unclear, as the $89 million price tag was not stated in the Polycom/HP announcement, but was noted in the $8K SEC filing, which is subject to change. Also missing from Polycom's release are the specifics of the acquisition (i.e., patents, headcounts, pipeline or facilities). HP has 100+ employees associated with Halo in Corvallis, Ore., and even local sources are uncertain about what this means for HP's Halo team in Oregon. HP has yet to issue a release.

Polycom/HP deal a win-win despite dated Halo technology

Halo is HP's nearly decade-old proprietary telepresence solution. Once considered ahead of its time, Halo had many high-profile installations including DreamWorks Animation, PepsiCo, and Advanced Micro Devices. With half-million dollar implementations, Halo competed in the very high-end of the space, but Halo hasn't kept up or caught on for that matter, and by today's HD standards, the technology is dated.

Polycom claims the acquired base only includes 425 blue-chip customer sites (note sites, not customers). Blue chip, no doubt, includes HP itself, which presumably uses Halo among its 320,000 employees. HP had previously indicated a need to refocus its business, and shedding Halo to a partner that can support and migrate customers while getting paid for it provides a foundation for a win-win transaction.

It is reasonable to assume Polycom has no interest in the Halo technology itself, as it seems to be doing just fine with its own telepresence solutions, which are broader, more economical and support high-definition (HD) video. However, in HP, Polycom bought more than museum fodder. The company also announced a partnership with HP that includes the exclusive use of Polycom video products internally at HP. HP will also resell Polycom video solutions exclusively. In return, Polycom has agreed to fully support video solutions on webOS (along with iPhone and Android).

Sealing the Polycom/HP deal

Polycom effectively transitioned a huge competitor to a systems integrator and got an installed base ripe for upgrade. Few details were provided on the nature of this exclusivity arrangement, but based on the fact that Juniper Networks was also present at the briefing, and that here wasn't any mention of Vidyo—which HP currently OEMs—the notion of exclusivity seemingly isn't mutual. As an added bonus, Polycom effectively removed HP as a potential partner or suitor for Vidyo and Radvision.

Google had worked closely with Vidyo, but that partnership faded when Google acquired On2. Radvision had an OEM relationship with Cisco, representing up to a third of its revenue, but that disappeared after Cisco acquired Tandberg. LifeSize was acquired by Logitech, and more recently Microsoft acquired Skype. Polycom has locked up one of the more suitable bachelors in the running.

The exclusive partnership with HP is the jewel of this deal, one that won't really even cost Polycom. The company insists the deal will be accretive upon closing (target close is Aug. 1, 2011), which means whatever Polycom ends up paying will be less than the profit it brings. It also suggests that HP didn't see a lot of options.

While the deal seems pretty solid for Polycom, HP's motivations are not so clear. Leo Apotheker, who was just named HP's CEO last October, revealed parts of his strategy for HP in March, which included the cloud, "big data," analytics and webOS. Clearly Halo didn't fit into this strategy, but neither did laser printers, and he hasn't sold that division. However, there probably weren't very many video vendors lining up to focus on webOS.

HP and Polycom have some details to work out, and more information will emerge this fall. In addition to its HP partnership, Polycom announced other UC news and featured guest executive speakers from HP, Microsoft, and Juniper Networks—all conspiring to take on Cisco's broad portfolio. The question is, will the financial markets treat these allies with the same indifference as they have Cisco?

About the author:

David Michels holds 20 years of hands-on experience in telecom. As president of Verge1 Consulting, Michels specializes in PBX strategies for the end user and manufacturer, as well as cloud services, SMB voice, channel development, unified communications and social media. Michels has appeared at hundreds of industry trade shows, including VoiceCon, Interop, and TCA. He maintains a personal blog at www.pindropsoup.com, and contributes regularly to nojitter.com and ucstrategies.com.

This was first published in June 2011

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