Avaya mum on rumours of Nortel bid

Officials from Avaya Inc. of Basking Ridge, N.J. will neither confirm nor deny rumours they are bidding for the enterprise unit of Nortel Networks Corp.

Toronto-based Nortel, which is operating under court protection from creditors until July 30, announced last Friday it was in advanced discussions to sell its business units. The same day Nokia Siemens Networks agreed to pay US$650 million for the Canadian manufacturer’s carrier wireless operations, making products using the code division multiple access (CDMA) and Long Term Evolution (LTE) technologies.

Published reports this week indicated Avaya is the “favoured buyer” for Nortel’s enterprise business, which includes contact centre software, Ethernet routing switches and firewalls.

Avaya, of Basking Ridge N.J., was the enterprise unit of Lucent Technologies Inc. before it was spun off as a separate company in 2000 and taken private in 2007.

“We don’t comment on rumours or speculation,” said Lynn Newman, Avaya’s director of media relations for North America.

Nortel did not immediately return a call from Network World Canada.

Avaya’s central focus is on voice products, including contact centre and unified communications. Its recently-announced Aura set of products, for example, include unified communications, session initiation protocol and application programming interfaces.

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Ronald Pickett, president of Newmarket, Ont.-based RDM TeleManagement Group, is a consultant who advises clients on network equipment.

Although Avaya has “financial issues,” he said a purchase of Nortel’s enterprise unit is “viable” because both Nortel and Avaya are “leaders” in the enterprise market.

“I’m hard pressed in a Nortel environment to recommend clients take it out and put other equipment in, because arguably, you’re really not buying more functionality. The Nortel stuff is as good as the Cisco stuff, it is as good as the Avaya stuff, and it’s world class, but it look like the current Nortel executive team is just going to liquidate it all. It’s sad.”

Nortel’s enterprise business has been declining rapidly. The unit generated about US$395 million in sales in the first quarter of 2009, down 41 per cent from a year ago, 34 per cent from Q4, 2008, and less than half of the $806 million recorded for the fourth quarter of 2006.

“If executed, Avaya will become a larger player in the enterprise market – a top 4 player in Layer 2-3 Ethernet switching and the largest VoIP player with roughly 25 per cent market share,” states Oppenheimer & Co. analyst Ittai Kidron in a bulletin on the reported Avaya bid. “This could either push privately held Avaya to continue to acquire smaller players to round out its enterprise portfolio and further consolidate market share or position itself as a more attractive acquisition target.”

Cisco and Juniper Networks Inc., of Sunnyvale, Calif., are likely to aggressively poach Nortel’s switching customers, Kidron states, and Avaya’s partnerships with Juniper and Extreme Networks may be impacted as well.

The company’s agreement to sell its wireless business to Nokia Siemens Networks is subject to approval by both the Ontario Superior Court of Justice (commercial list) and the U.S. Bankruptcy Court in Wilmington, Delaware.

It is a “stalking horse” bid, meaning another vendor could offer Nortel more than Nokia Siemens Networks did.

Court hearings are scheduled next Monday. Nortel CEO Mike Zafirovski, during testimony last week before the House of Commons Finance Committee, said a request to Cabinet for financial aid was rebuffed.

Pickett criticized the federal government for loaning money to auto manufacturers but not for bailing out Nortel.

“We’re losing good jobs that are hard to come buy,” Pickett said. “You’ve got the governments that are spending money bailing out the likes of General Motors and trying to maintain high school jobs, and yet we’re prepared to let all these graduate and post graduate jobs go.”

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