Why Avaya Was Spun Off

I was reading one of the networking magazines this weekend and was surprised at the error made by one of the authors. I don’t want to embarrass the person so I won’t mention them or link to the article. The comment was that Lucent sold Avaya to focus on the service provider market because it couldn’t serve both. The door just does not seem to swing both ways.

Right before Avaya was spun off, Lucent held a press conference with a hundred or so editors and analysts. I happened to be in attendance. The gist of the presentation was that optical networking is the future and service providers were the future. George Gilder’s name was thrown around more than a brand new WWE wrestler. The future was bright for Lucent according to everything we heard.

Furthermore, we were told the enterprise market was going to grow slowly. Charts and graphs were supplied to all of us showing the enterprise space growing if memory serves around 30% while the service provider market was going to grow near or in triple-digits.

Lucent also saw other optical networking companies such as JDS Uniphase and others commanding much higher valuations that they did. Sonus was worth greater than 12 billion dollars at one point in fact. By spinning off the enterprise products, they could focus on the high growth areas and perhaps have their valuation soar.

In speaking with execs from Nortel over the years they tell me that generally the service provider business does well when the enterprise market is soft and vice versa. This turned out to be a true assessment of the market over the past five years.

Getting back to the comment. The door can swing both ways and has in the past and will in the future. In fact there are synergies between the enterprise and service provider markets. Why would you not want to leverage your development cost in two spaces instead of one? Makes no financial sense to me.

There is no substitute for experience in the market. Not just anyone can decide they want to write about telecom out of the blue and have a handle on the past. You had to be here to know the full story. End of rant.

  • Will Spencer
    August 21, 2005 at 4:53 pm

    Lucent has not displayed great business sense in the time since they were spun off from Mother Bell.
    The good news is that this opens the marketplace for new products from smaller competitors.
    The bad news is for the Lucent shareholders.

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