Nortel Networks pushes into the enterprise. Check it out:
(Telephony Via Thomson Dialog NewsEdge) How much of an enterprise vendor can Nortel become?
After months of confusion over its strategic direction, Nortel Networks has voiced clear, bold ambitions in the enterprise space through a few recent moves. As the telecom vendor vows to accelerate IT/communications convergence and blur the line between carrier and corporate networks, it's raising questions about just how enterprise-focused it will ultimately become.
When CEO Mike Zafirovski vowed early this year to devote Nortel only to markets in which it could hold at least a 20% share, many wouldn't have guessed the enterprise would be among them. Nortel took 15% of the enterprise telephony market last year while most of its other enterprise segments held single-digit shares. The big shares don't appear to be growing, and the business as a whole isn't generating much profit.
Nortel only gets about a quarter of its revenue from the enterprise market today; it's expected to contribute less than $3 billion of Nortel's more than $11 billion in total revenue this year. Though the company won't say how enterprise-reliant it ultimately wants to be, it's clearly upping its bet there. Although it exited some telecom ventures this summer (wireless UMTS access and an access partnership with Huawei Technologies), Nortel announced a broad partnership with Microsoft to integrate and jointly develop unified communications (or converged voice/IT) products that Zafirovski said will bring Nortel more than $1 billion over the next three years. And according to Joe Chiasson, Susquehanna Financial Group analyst, Nortel may be mulling an acquisition of high-end enterprise Ethernet router vendor Force10 Networks to complement last year's acquisition of lower-end enterprise router maker Tasman Networks.
In some ways, Nortel's enterprise push acts as a defense against its merging competitors in telecom. When Alcatel and Lucent Technologies kicked off big-merger mania, odds makers paired off most vendors in their minds, but most expected Nortel to be left out, its lingering accounting problems making it too risky a merger partner. Nortel's enterprise push is an alternative to big telecom M&A and a zig to its rivals' zag. Alcatel is a leading IP PBX vendor in Europe, but Lucent hasn't been a supplier to the enterprise space since it spun off Avaya in 2000. And in North America lately, major vendors have been focused more on residential broadband than IT network convergence.
However, Nortel's enterprise push is also one from frying pan to fire, as it forces direct competition with the indomitable Cisco Systems. Nortel says it will offer much-needed choice and multi-vendor interoperability to Cisco's customers, but other would-be challengers have found that Cisco wields too much influence over distributors to allow a strong second-place player.
Very few [value-added resellers] are willing to divert resources away from Cisco and thus risk its wrath given how much of their existing revenue is derived from Cisco, Chiasson said. By courting Microsoft, Nortel may instead hope to pit one giant against another.
They have to tear up the model, said Jim Kelleher, Argus Research analyst. [Nortel has to] say the future of enterprise communication is not a box, it's a software suite.
Since the Microsoft announcement, Nortel has seen renewed interest from enterprise channel partners, said Ruchi Prasad, Nortel's vice president of enterprise global marketing. This month, the company announced new packages of its enterprise voice and data products and a shorter distributor accreditation process, both aimed at making it easier for resellers to take Nortel gear to small and medium-sized businesses. Further announcements on distribution strategy are soon to come, Prasad said, and the company also might expand its Microsoft partnership to other areas of the software giant's business.
Microsoft is a big company, she said. Stay tuned.
NORTEL'S ENTERPRISE PRESENCE, 2005
Product areaRevenue (in millions of dollars)Market shareEnterprise telephony123915%L2-L3 switching (modular)3114.3%L2-L3 switching (fixed)2794.4%High-end routing101.3%Access routing351.1%Security (IPSec VPN/firewall)2109%Security (SSL gateway)3116%L4-L7 load-balancing8713.5%Total2203Source: Susquehanna Financial Group, SFG Research, Infonetics, Dell'Oro
Copyright 2006 by Prism Business Information. All rights reserved.www.prismb2b.com
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