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Nortel routers and switches may go to buyer of telephony business

Nortel enterprise customers could get swept up in a larger deal for Nortel's telephony business, but it remains to be seen how well a telephony-focused buyer will support networking enterprise customers.

With all of Nortel Networks now up for sale, customers of Nortel's enterprise switches and routers are likely to find themselves swept up in a larger deal for Nortel's telephony and unified communications business.

Nortel Networks announced on Friday that it will attempt to sell off all its business units rather than reorganize itself and emerge from bankruptcy. The company followed up that announcement with a letter to customers of Nortel Enterprise Solutions informing them that it will sell its other businesses to third parties. Nortel said it would try to restructure remaining pieces of the company only if it is "unable to maximize value through sales."

"I talked to Nortel at Interop and they were adamant about not selling off the enterprise division. Some other stuff may go, they said, but the enterprise stuff is safe," said William Terrill, principal analyst with Current Analysis. "I think the announcement on Friday pretty much said, well, maybe enterprise is not safe after all."

Nortel Enterprise Solutions has two major components: data networking and telephony. Telephony will be the more coveted of the two, according to Zeus Kerravala, vice president of research firm Yankee Group. He said the enterprise networking product line is a little long in the tooth.

"They really have got kind of an older [switching and routing] product line," Kerravala said. "There are a couple of products which I think have some value – the new [VSP 9000] switch, if it ever actually gets launched – but for the most part they've got a pretty old product set."

Terrill was a little more sanguine about Nortel's networking products. "The technology is good, but it's not outstanding," he said. "They were slow on the development cycle over the last several years, but their VSP 9000 announcement at Interop was a nice push into really high-end enterprises."

Whether or not the buyer of Nortel Enterprise Solutions sees a future for the networking business, Nortel's customers will be taken care of -- at least in the short term.

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"No one is going to be left hanging out there due to this transition," said Victor Bohnert, executive director of the International Nortel Networks Users Association. "Given where the industry is heading, I find it hard to believe that someone would draw distinct lines between [networks and telephony]. I know convergence is an overused term, but part of the reason for it is that it's a reality, the convergence between IT and telephony."

Ultimately, customers have long-term value, and no prospective buyer will throw them away. "If you do believe that the installed base is one of Nortel's most valuable assets an acquiring company would pick up, then it stands to reason that they would protect that asset," Bohnert said.

How well can a telephony-focused company support data customers?

Both of the companies most rumored to be in the market for buying Nortel Enterprise Solutions are primarily telephony vendors, however, and it is unclear how well they will be able to support data customers in the long term. Avaya is a pure telephony and unified communications vendor that would mostly be interested in Nortel's telephony customers. Siemens Enterprise Communications merged last year with Enterasys Networks, making that its networking business. Siemens might make use of the Nortel customer base, but companies like HP ProCurve, Brocade and Juniper are much better positioned to compete head to head with Cisco.

"Siemens actually told me that they were looking to buy the enterprise group about a month ago," Terrill said. "I don't know where it stands now. They said they wanted the market share. That's why anyone would buy it right now."

The networking business will be part of the deal because it would be extremely difficult to separate the two, Kerravala said. Moving forward, it remains to be seen what the buyer would do with the networking business. He doubts that the buyer would try to grow or establish a market share in networking via the Nortel business, though it would try to support customers, at least for now.

"I don't really believe there is a ton of value in the data [networking] business," Kerravala said. "I think it's too hard to gain share of the market when Cisco and ProCurve and Brocade are in it and Juniper and 3Com are coming on. It's a monumental task to try to build share."

Any networking vendor not named Cisco would value the opportunity to grab the 3% or 4% of the networking market that Nortel owns, Terrill said. The acquisition would have its challenges, however.

"Others, like Siemens-Enterasys, have competing products," he said. "There would be definite overlap in many areas, and that would translate into some products having to go and some support issues."

On the other hand, Terrill said, Avaya would probably try to keep the networking business going. "They would leverage it very heavily and keep it going straight out as far as they can," he said. "They'd just take it whole and carry that market share and tell the channels they want to work with them to maintain this."

But it remains to be seen how well a company like Avaya, which plays purely in telephony, would manage a data networking business.

"If I [were] a Nortel customer, I'd be concerned about making any new purchases," Kerravala said. "You don't know what the portfolio will look like post-acquisition until you find out who buys them. If nothing else, I'd be hedging my bets, looking at alternative suppliers that I can start planning around. There are plenty of other good data networking providers – ProCurve has some interesting products. If you're looking for some good solid networking products [other than Cisco], Brocade-Foundry is the best. At least have some relationships in place so you've got some products going and you can start training on it."

Terrill said customers of Nortel switches and routers should wait as long as possible to see what happens.

"If you absolutely need more [Nortel] equipment, go ahead and get it," he said. "If you can hold off for another month or two, wait. Honestly, something's got to shake out. [The enterprise networking] business isn't going to go away any time soon."

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

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