INTEROP: Virtualization and economy an opportunity, Nortel says

Hot data centre trends in virtualization and energy efficiency, combined with the bearish economy, add up to opportunity for Nortel [Nasdaq: NT], according to the vendor’s enterprise chief.

Virtualization is an extension of the “purpose-built” unified communications infrastructure Nortel is building, with Microsoft’s help, says Joel Hackney, president of Nortel’s Enterprise business. Nortel claims that recent studies show its switches and routers are as much as 50 per cent more energy efficient than competitive offerings.

This aspect has helped the company land 50 recent enterprise wins, Hackney says. It’s also playing a key role in helping Nortel create demand during a recessionary economy marked by reduced spending on enterprise IT, he says.

“The opportunity we see in the marketplace today is simplifying networks,” Hackney says. “Customers are looking for a choice. We have the opportunity for growth as the No. 2 player going against a very large market-share [leader].”

Nortel has been struggling to gain share against Cisco [CSCO] in the enterprise, particularly in Ethernet switching. The company has fared better in VoIP and has high hopes that its alliance with Microsoft for unified communications will make significant inroads.

At Interop this week, Nortel unveiled the VSS 5000, a switch designed to virtualize services provided by devices including firewalls, application switches and SSL-acceleration appliances. The VSS 5000 switch consolidates and virtualizes these functions into a single device, then orchestrates and provisions services to different enterprise departments or workgroups.

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Nortel also may be looking to strengthen partnerships with data-centre server- and storage-software vendors like VMware [VMW] in an effort to entrench itself deeper in the virtualization opportunity, Hackney says.

“We have very strong dialogues with VMware,” Hackney says. “Our teams are very tightly linked in terms of common vision, common strategy.”

Cisco has an equity stake in VMware, and Enterasys plans to ally with the vendor and Dell on a virtual data centre design campaign later this year.

Green initiatives in the data centre also open up opportunity for Nortel, Hackney claims. The company said recent tests conducted by Tolly Group and InfoTech, commissioned by Nortel, found Nortel products to offer 20 times the performance and seven times the resilience and to consume half the energy of competitive offerings.

While this may have helped Nortel land dozens of recent enterprise wins, those wins do not necessarily translate into market share gain, Hackney acknowledges.

“We’re not in this for one quarter or two quarters — we’re in this for the long term,” Hackney says. “Nortel has identified the enterprise business as a strategic element to aggressively grow [by] increasing our R&D investment by 50 per cent over the past 18 months. If you look at our success rate when we get the opportunity to bid on an RFP, it’s very high — much higher than our market share.”

Hackney says Nortel’s enterprise business has grown faster than the market for the past six or seven quarters, and will continue on that trajectory.

That may be difficult given the sluggish economy and a slowdown in spending on enterprise IT. Research firm ChangeWave already has characterized IT spending as recessionary. Yet Hackney insists that this, too, presents an opportunity for Nortel, especially in vertical markets less susceptible to the macroeconomic environment than others.

“Some people look at a down market and say, ‘Boy, this is a time for me to double down,'” Hackey says. “[If] you look at the productivity savings of some of the IT investments that we can do, they’re not quite going to cut off investments that are going to reduce the total operating cost of their company.”