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Rivals of bankrupt Nortel to poach networking customers aggressively

As Nortel works to restructure itself in the midst of bankruptcy, the company's enterprise networking customers will find themselves targeted by rival vendors with discounts and trade-in deals.

Customers of Nortel Networks enterprise networking hardware should expect a slew of special offers from rival vendors that will try to capitalize on the Canadian company's bankruptcy.

Nortel Networks filed for Chapter 11 bankruptcy protection last week to give itself time to restructure after a $3.4 billion quarterly loss capped several years of financial malaise for the company. While the bankruptcy filing will protect Nortel from creditors, rival vendors will waste little time in capitalizing on the company's troubles.

Nortel customers can expect vendors such as Cisco Systems and HP ProCurve to target them aggressively, according to Nick Lippis, CEO of consultancy Lippis Enterprises.

"When Nortel filed Chapter 11 bankruptcy, there was a de facto vacuum in the marketplace," Lippis said. "I think what we'll see is: Their enterprise networking business has always been under attack, but it's going to be under increasing attack by Cisco and HP ProCurve."

Vendors are already scrambling to announce special programs aimed at picking off Nortel customers. On Tuesday, F5 Networks announced that it would offer trade-in credits to owners of Nortel's Alteon Application Switches. F5 is offering up to $9,000 for an Alteon switch if an enterprise buys one of its BIG-IP Application Delivery Controllers.

Other deals, both large and small, are likely to emerge as networking vendors look to capitalize on Nortel's bad publicity. Some of these offers will be global, but others may be very local. For instance, Enterasys Networks' South African division is offering 100% trade-in credits to local customers that trade their Nortel switches for Enterasys switches.

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Nortel customers seem prepared to stick with the vendor for now. The International Nortel Networks Users Association (INNUA) quickly announced its full support of Nortel during the restructuring efforts.

"There was simply no question about [making that statement]," said Victor Bohnert, executive director of INNUA. "It was really a matter of making sure our unwavering support was made public, and quickly. We speak with the voice of 4,000 customers, so we felt our support was important."

As for prospective customers, Bohnert said that enterprises shouldn't take Nortel off their short lists of vendors when procuring network and communications hardware. He said the strength of the company's products is not in question. Instead, it's Nortel's financial condition that is troubled. When it emerges from bankruptcy, Nortel will probably be a vendor focused on enterprise products, he said. In fact, Nortel spent much of 2008 trying to sell off its metro Ethernet business, with no success.

Prospective enterprise customers of Nortel should keep in mind that "Nortel's intent and strategy is to be around in the long term. Don't let short-term situations influence long-term decisions [about hardware]," Bohnert said. "United Airlines is still flying, and they went through this."

Prior to the bankruptcy, Nortel's enterprise networking business was in a state of transition and transformation, with some product roadmap direction that was going to enhance it, according to Mike Sapien, principal analyst with Ovum. "It is clearly not as strong as Cisco's, but they were in the process of making it stronger," he said. "Nortel was starting to put more focus on [its] enterprise products versus carrier products."

Sapien said that prospective Nortel customers should be careful to get as many guarantees in writing as they can when buying Nortel products. They should also work to get commitments around the products from senior management at the company.

"They must also demand, and get agreement for, Nortel to provide constant communication so that they can make the best decisions about Nortel products if the ownership is going to change, a product roadmap is stopped/reduced, and/or a product line will be eliminated," Sapien said.

Customers should bear in mind that a bankruptcy like Nortel's is normally a long process, he said, so there is no need to make a quick decision about what to do with their installed Nortel products.

Of course, Nortel customers should also prepare for the worst -- that the company might slip further into financial trouble and file a Chapter 7 bankruptcy, which would lead to liquidation of the company, Lippis said. Or Nortel might simply pull out of the enterprise networking market.

"We've always had too many suppliers -- Cisco, Foundry, Extreme, ProCurve, 3Com and a group of others," he said. "We've always had too many suppliers there in that marketplace.… There are more competitors in that segment of the market that are very strong and very powerful, and [Nortel] hasn't been able to invest in [its] Ethernet switch product line to keep up."

Let us know what you think about the story; email: Shamus McGillicuddy, News Editor

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