Alcatel-Lucent inches closer to selling enterprise business

The newswires are reporting that Alcatel-Lucent is meeting potential buyers for its enterprise unit this week in San Francisco. News of the company’s intent to sell first surfaced nearly two weeks ago. Possible suitors include Avaya, Cisco, HP, and Siemens Enterprise Communications (SEN). It’s said that SEN is considered to be the front-runner in the deal.

Some industry analysts and bloggers are picking HP to win it and arguing that a buyout from SEN wouldn’t make much sense. But there are also detractors. Dave Michels from Pin Drop Soup postulates, rather succinctly:

If It is cash then Cisco wins (who wants their stock anyway), and if it is a stock deal SEN wins. If it is not cash or stock, it is an IPO.

To me spinning off the enterprise business (which includes Genesys) would make the most sense. There are definitely growth opportunities for this part of the business, especially with Genesys’ momentum in the industry. ALU can partly own and invest in the spinoff if it wishes to continue to enjoy the fruits of the enterprise division. But the spinoff process is sometimes messy and perhaps costly, and it appears that ALU is really eyeing for a cash transaction of at least $1 billion for this sale, instead of a stock transaction.

I don’t believe any publicly-traded company whose core competency isn’t in enterprise telecom would want to touch this deal, simply because Genesys is such a big part of the equation. Cisco, having recently trimmed its consumer business in order to appease shareholders, wouldn’t dare to spend a cool billion on ALU Enterprise. Cisco shareholders want to see more sales of big iron data routers and switches, and new products to fend off cheaper competing products.

A buyout from HP may seem like a match made in heaven, but I think HP has more to gain as a mistress than the bride in this situation. It already has a good partner relationship with ALU Enterprise. HP thrives on partnerships when it comes to augmenting and supplementing its enterprise portfolio, but it will make bold moves such as the Palm acquisition in acknowledgement of its tablet computing failure (the HP Slate) and corrected the course with the Palm buyout. A lot of what ALU Enterprise offers overlap with what HP can already do, except in the contact center and IP telephony areas. With 2Q2011 earnings release coming up in less than a month, I’m not so certain that HP would stir the pot and go for it.

That leaves private equity firms and/or other private investors. Both Avaya and SEN are backed up private equity money, and I wouldn’t be surprised if Silver Lake Partners or Gores Group decides to expand their portfolio with ALU Enterprise. These equity firms have a track record of understanding and not shying away from enterprise telecom companies. However, Avaya hasn’t completely mastered the aftermath from the Nortel Enterprise buyout yet. SEN, on the other hand, is desperate for some traction especially here in the U.S. It’s no wonder SEN is reportedly the front-runner in the deal.

However this deal goes down, my hope is that it isn’t rushed. There are plenty of potential buyers and options, including for ALU to do nothing.

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West Corporation buys Smoothstone IP Communications

West is having a field day in this economy picking up sweet deals in the communications and contact center space. In May 2010 it was Holly Connects, soon followed by TuVox in July, and this month it’s Smoothstone.

West is big in the contact center outsourcing market, but it wants to expand by offering more products and services. Holly Connects gave it an IVR platform, and TuVox gave it on-demand IVR speech applications.

Now it sees the red hot unified communications market and wants a bigger piece of that action. Smoothstone fits right in, offering products and services in voice, contact center, UC, and collaboration — cloud-based at that. I’m sure West doesn’t mind seeing “cloud” mentioned in there somewhere. Based on its recent 1Q2011 earnings, UC is where the money is so it’s not surprising to see the company move in to fortify its UC portfolio.

To me West is starting to look like GE, turning into a conglomerate of sorts. West now has a long list of businesses and divisions from its many acquisitions, and with that quite a few product and service offerings. Does it face consolidation and branding challenges? Most likely, but it hasn’t slowed West down one bit.

The official press release:

OMAHA, NE and LOUISVILLE, KY, April 20, 2011 – West Corporation, a leading provider of technology-driven, voice and data solutions, and Smoothstone IP Communications, a leading provider of cloud-based communications solutions for the enterprise, today jointly announced that they have entered into an agreement whereby West will acquire Smoothstone. The acquisition adds to West’s expanding unified communications (UC) business, which includes InterCall.

Smoothstone develops and delivers highly flexible and scalable solutions for clients’ next-generation IP telephony needs. As enterprises upgrade their voice and data infrastructure, Smoothstone offers software-driven applications that exist in the cloud and are delivered through a software-as-a-service (SaaS) model. Smoothstone applications and services reduce the costs, risks and uncertainties of deploying new IP technology. Smoothstone’s solutions combine to bring the benefits of unified IP communications to enterprises quickly and reliably.

“Smoothstone’s expertise at delivering cloud-based unified communications solutions is unrivaled,” said Todd Strubbe, president of West’s Unified Communications operating segment. “By leveraging Smoothstone’s unique solution portfolio and the benefits of the cloud-based services delivery model, our clients will be able to focus on business initiatives that help drive their competitive advantage rather than on evolving IT infrastructure.”

“Smoothstone has developed cloud-based solutions that enable enterprises to migrate from legacy infrastructures to next generation applications and services, including application-aware MPLS networks, VoIP services, Unified Threat Management, Unified Messaging, mobile integration and advanced Contact Center solutions,” said Jeff Wellemeyer, co-founder and president of Smoothstone. “Our focus has always been on providing enterprise clients with a breadth of solutions and a level of service that they are simply not able to get from any other provider. We are pleased to be joining the West family of companies as we share a common passion for delivering exceptional service to clients. Our team and I look forward to continuing to serve clients and grow this business.”

Smoothstone was the recipient of Frost & Sullivan’s 2010 award for Competitive Strategy Innovation in Hosted IP Telephony and UC Services for North America. This prestigious award recognizes Smoothstone’s best-in-class strategy to manage growth, innovation and leadership in the dynamic IP communications market. Frost & Sullivan commented on the award by stating: “Smoothstone’s innovative competitive strategy has allowed it to service its customers in a very efficient and cost-effective manner. Through its unique technological platform and customized bundling solutions, as well as an extensive partner program, Smoothstone is poised to capture a growing share of this market.”

West will pay approximately $120 million to acquire Smoothstone. The acquisition is expected to close in the second quarter of 2011 after satisfaction of certain closing conditions, including customary regulatory approvals. Upon completion of the acquisition, Smoothstone will become a part of West’s Unified Communications operating segment. The Smoothstone product portfolio will be available to West’s wide base of clients, adding cloud-based IP telephony to a growing list of West’s unified communications solutions. Smoothstone will continue to offer its full portfolio of applications and services and will continue in its mission to help leading enterprises transform the way they communicate.

Other benefits of the Smoothstone solution include:

  • Faster deployment times compared to traditional, on-premises deployments
  • Ongoing technology refresh that keeps up with a rapidly evolving UC market
  • Ease of integration into business processes and enterprise applications
  • Elimination of the burden of managing communications infrastructure and services, allowing resources to be focused on more strategic initiatives

“West’s commitment to the high-growth unified communications industry is clearly demonstrated with this and our other recent acquisitions in the space. West now claims a leadership position in unified communications with a broad, unique and reliable set of products. By leveraging the InterCall global distribution model with our long-term client relationships, West’s opportunity for growth is improved as a result of these acquisitions,” said Tom Barker, CEO, West Corporation.

About West Corporation
West Corporation is a leading provider of technology-driven, voice and data solutions. West offers its clients a broad range of communications and network infrastructure solutions that help them manage or support critical communications. West’s customer contact solutions and conferencing services are designed to improve its clients’ cost structure and provide reliable, high-quality services. West also provides mission-critical services, such as public safety and emergency communications.

Founded in 1986 and headquartered in Omaha, Nebraska, West serves Fortune 1000 companies and other clients in a variety of industries, including telecommunications, banking, retail, financial, technology and healthcare. West has sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information on West Corporation, please call 1-800-841-9000 or visitwww.west.com.

About InterCall
InterCall, a subsidiary of West Corporation, is the largest conference and collaborations service provider in the world and a leading provider of global cloud-based unified communications services. Founded in 1991, InterCall offers telephony, messaging, conferencing and collaboration tools for businesses of all sizes, from large global enterprises to small or regional companies. With a global footprint and broad service capabilities, InterCall’s flexible models for hosted, managed and on-premises communications services help companies get the most out of their business processes.

InterCall’s strong U.S. presence, including four call centers and 26 sales offices, is bolstered by operations in Canada, Mexico, Latin America, the Caribbean, the United Kingdom, Ireland, France, Germany, Australia, New Zealand, China, India, Hong Kong, Singapore and Japan. For more information, please visit www.intercall.com.

About Smoothstone
Smoothstone IP Communications is the leading provider of cloud based communications for the enterprise – including MPLS-based application network management, enterprise voice, unified threat management, advanced contact center solutions, unified messaging and collaboration tools-all delivered as a unified suite of cloud-based applications. Smoothstone’s scalable, on-demand applications and services can be integrated with a customer’s existing network and telecommunications infrastructure, operational processes, and employee activities, enabling a customer to migrate to unified IP communications as their business requirements dictate. For more information, visit www.smoothstone.com or call 1-800-773-3037.

At West Corporation:
David Pleiss
(402) 963-1500
dmpleiss@west.com

At Smoothstone:
Luke Blackburn
(502) 272-2920
lblackburn@smoothstone.com

 

CenturyLink to eliminate Qwest brand

Could this be the industry branding gaffe of 2011?

An year ago CenturyTel (CenturyLink, whatever — I swear this company has an identity crisis) acquired Qwest. Now it’s on a public awareness campaign to transition (i.e. eliminate) the Qwest brand altogether. There’s even an official website dedicated to the merger.

The (IMO) better-known brand Qwest will be going away soon. The headquarters will remain in Monroe, La., too:

Separately, CenturyLink executive vice president Stacey Goff disclosed two weeks ago that the company had to work hard to keep its headquarters in Monroe rather than relocating to Denver.

Yes, the third largest U.S. telecom company decided against Denver as its new HQ, even though I’m pretty sure there are more resources, talent, and better infrastructure in the Mile-High City.

Eliminating the Qwest brand, staying in Monroe — sounds like some good ol’ we-acquired-you-not-the-other-way-around politicking going on? Did somebody say culture clash?

Best of luck, CenturyLink. And Qwest, your brand will be missed.

Alcatel-Lucent may shed enterprise business

It appears that Cisco isn’t the only one looking to go on a diet.

According to the Wall Street Journal MarketWatch:

Alcatel-Lucent (ALU6.01, -0.05, -0.83%) SA is exploring the sale of its business that sells phones and other telecommunications gear to corporations and which could be valued at $1.5 billion or more, according to people familiar with the matter.

The Franco-American company has hired advisers and during recent days began to examine options for the business, which has about $1.5 billion in annual sales. Besides a sale to a single buyer, other options include an initial public offering of stock. An Alcatel-Lucent spokesman declined to comment.

Genesys would be part of the enterprise business. Speculation on potential buyers include Microsoft, HP, Ericsson, and other private equity firms.

Previously there was also talk about ALU being sold to an undisclosed Chinese firm. So there’s definitely something going on within the company…

It’s not that its enterprise business isn’t making money, but it’s just too small in the overall picture. And like Cisco, ALU also has anxious shareholders to appease and thinks that return to its roots will help.

Guest post: Cisco flipping off Flip a bad decision

John Stepp, president of Free Tech Consultants, on Cisco’s recent restructuring announcement.

Cisco has always been an innovator. From networking to VOIP to telepresence, Cisco has always led the way with new technologies they continued to develop to meet the changing needs of the enterprise. The acquisition of TANDBERG last year and the announcement this year that Cisco would be video enabling all their enterprise end points are current examples of bold moves that clearly demonstrated leadership. That is why the Flip announcement is so puzzling. Why?

Sure, one can argue that the purchase of Pure Digital was a mistake to begin with. I disagree, but the point is moot. The deal was done. The costs were sunk. So why just quit? Is the R&D engine for this product so broken that there was no possible path to success? If that is the case then Cisco should be commended for ending the product. Better to do that than to sell it, spin it off or joint venture it when there is no possible path to success. But it is hard for me to believe that the Flip could not have been innovated and marketed effectively in some way shape or form. There are so many different directions this technology could have gone. Wi-Fi enablement, incorporation into an enterprise end point, 4G/LTE connectivity, better HD video features and many other innovations could have given the Flip and its’ market segment fresh legs and bolster the Cisco brand image. Killing Flip hurts the Cisco image, especially with the video-centric Flip user community.

The notion that smartphone cameras make candy bar cameras like the Flip obsolete is laughable to me, although it seems to be a theme in each article I read about the Flip’s demise. The best candy bar cameras are far superior to cell phone cameras and there is no reason that the Flip could not evolve to stay ahead of the pack. I recently bought the JVC Picsio waterproof candy bar camera, but probably would have bought the Flip had it been innovated properly. No phone or iPod nano can do what the JVC Picsio can. Flip is still the market leader, with unmatched name recognition and could have continued successfully.

So why are they just shutting Flip down? Why abandon their employees and their customers? Could they not have spun the company off to get their low margins off of their balance sheet? Could they not have done a joint venture with an established camera company like Canon or Kodak? If this is just part of a “bold” move to show that Cisco is serious about changing the company’s focus and influence investors, it seems to me there was a better way to do it. Some day we will know what has happened behind the scenes at Cisco and Pure Digital. Maybe it will make sense at that time. Today it seems like a terrible waste of talent and intellectual property.

The good news for Cisco is that the rest of their video story is very positive. The Cisco TANDBERG product line is already providing synergy that is attracting an ever growing number of customers. The video revolution in the enterprise continues to be led by Cisco. Margins that have eroded in their networking product line will soon be bolstered as the video revolution begins to explode during the next decade. Their stock is a good long term play in my opinion, but then again, I thought the Flip was, too.

The telecom front in the Libyan civil war

The first step in winning a war is to control information and the flow of it. We’ve seen it again and again especially with the recent developments in the Middle East and North Africa. In Iran, Tunisia, Egypt, and more recently in Libya, the governments quickly cut off cell phone and Internet access to its people in hopes to disrupt the organization of mass protests and civil unrest.

Just a month ago, before the NATO sanctioned no-fly zone in place now over Libya, rebel forces had to rely on hand motions and flag waving to coordinate attacks to push through westward toward Gadhafi’s stronghold in Tripoli. That’s because Col. Gadhafi had severed the nation’s telephone and Internet services in March to gain an advantage against the opposition. But thanks to a resourceful Libyan-American telecom executive, millions of Libyans now can at least make domestic cellphone calls again and a handful of them in eastern Libya able to call internationally.

Ousama Abushagur (Twitter @oabushagur) is an Libya-American telecom executive raised in the high-tech southern city of Huntsville, Alabama. He put together a plan to hijack the cellphone network operated by Libyan General Telecommunications Authority which is run by Col. Gadhafi’s eldest son. Abushagur was able to secure the necessary telecom equipment from Gulf states Qatar and UAE (China’s Huawei, Libya’s telecom contractor, declined to sell any equipment) as well as satellite service from Etisalat.

Then he just had to figure out a way to ship the equipment along with a team of engineers. And of course, bodyguards.

In the end Abushagur and his team succeeded in bringing back cellphone service not only to the rebels but also to the millions of citizens. The new cellphone network, dubbed “Free Libyana,” indeed offers free domestic calling for now because no billing system is in place.

His idea is actually quite disruptive. Who wouldn’t want to run their own cellphone service? Obviously there are costly telecom equipment to consider as well as highly specialized engineering knowledge. Interestingly, the idea wasn’t to deploy a data network capable of wireless VOIP — cheaper, easier, faster? — but stick with the traditional cellphone service. As much as we’re in love with VOIP, the majority of handsets out there are GSM and not smartphones running fancy VOIP apps. Also, it was probably harder to hijack an ISP’s service.

The Wall Street Journal has more details on this fascinating story.

WWJD about Cisco?

Networking behemoth Cisco has been in the news lately, but for reasons of disappointing financials and lackluster shareholder returns. Cisco is truly a world renowned global tech giant, another American entrepreneurial success story with deep roots in Silicon Valley. Its name, after all, paid homage to the City By the Bay, and its founders came from the computer operations staff at Stanford University.

The company has grown a lot and weathered tremendous hardships such as the dot-com bust. It’s a component in the Dow Jones Industrial Average and the NASDAQ 100 Index. This tech giant obviously has sound products and effective executives for the company to become an important part of the Internet Age. Without its heavyweight data routers and switches in the Internet backbone, all of us would have trouble sending emails, browsing the Web, and conducting online meetings.

But being a public company meant that ultimately Cisco has to report to its shareholders, and they are far from pleased. It has grown with many acquisitions, including several in the consumer market in hopes of better revenues, yet its recent financial guidances continue to disappoint. Even more worrisome is the news that Cisco actually lost market share in the enterprise networking market, an area which it dominated for years.

So, what would John (Chambers) do?

The CEO has realized that something drastic is required to turn Cisco around. This reminds me of what happened to Nokia recently, except Cisco isn’t in that bad of a shape (yet). First, of course, Cisco released a memo from Chambers to employees — his “guiding principles” in excerpt:

We now need to prepare ourselves for what’s next, as you will see Cisco make a number of targeted moves in the coming weeks and as we move into FY12.   These actions will be based on uncompromising integrity and will represent a very simple set of guiding principles:

  1. We will not fix what’s not broken. There are numerous areas where we’re executing incredibly well for our customers and partners.  In these areas, you will see no disruption and you will see nothing less than support and empowerment.  Simply put, we will not get in the way of our success.  Our five company priorities are established:  leadership in core routing, switching and services; collaboration; data center virtualization and cloud; architectures; and video.  The importance of delivery to market through our partners is also clear – and we will do nothing but reinforce this.
  2. We will take bold steps and we will make tough decisions.    With change comes disruption, and you will see this necessary and healthy disruption as we make meaningful decisions in a timely, targeted and measureable way.   We will address with surgical precision what we need to fix in our portfolio and what we need to better enable.
  3. We will accelerate our leadership across our five priorities and compete to win in the core. Again, our strategy to extend the role of the network will not change.   Our approach to leadership in the core amidst this transition will change.  In switching we understand that our customers are buying across broader segments and specific needs in this market.   We understand that our competitors in this area are fierce, with different business models and architectures.  We will not be defined by them.  Most important, we understand that our customers want to stay and grow with Cisco.  They know we will partner with them to make their business successful and their technology investment sound.  They know us well and understand that we will not leave or devalue this business.  We need to give them the right reasons to make this transition with us, and we will.
  4. We will make it easier for you to work at Cisco, as we make it easier for our customers and partners to work with Cisco.   We will simplify the way we work and how we focus our attention and resources.  We will significantly rework our systems, tools and funding models to do this.  We will reshape the operational foundation in order to empower our teams, integrate our major functions, and allow our people to focus on inspiring and important work.  We created the role of COO to expedite this effort and Gary Moore and I will drive these changes with the leadership team.

And quickly within a week of the memo and 30 days from its third quarter earnings call, Cisco restructures its consumer business, starting with closing down Flip (from Pure Digital Technologies) which was acquired for $590 million two years ago. Other products possibly to be affected include Linksys networking gear and Umi telepresence (not that anybody cares).

Would anything happen to its contact center business? Gartner in a 2010 report cautioned against Cisco’s Contact Center Enterprise and Express products as “under-featured,” “less feature-rich,” and no “all-in-one contact center applications suite capable of scaling to large enterprise size.” Essentially, its contact center products “sell strictly into environments using [Cisco’s] data communications network and telephony solutions.”

There’s little doubt that Cisco mastered data networking. But contact center applications? Some would say that’s debatable. If Chambers is really serious about returning to Cisco’s roots, then losing the contact center portfolio would be fair game.