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Analysis: Who's lining up for a slice of Nortel

When Nortel fell into administration at the start of 2009 the industry mourned the first major IT casualty of the recession, but the optimistic expectation was that Chapter 11 would turn out to be a boon for the firm.

Nortel-watchers and partners alike speculated that the firm would take advantage of its legally protected status to restructure and emerge from protection in the near future both stronger and more competitive.

A key part of Nortel's business, and one that UK resellers have been heavily involved with, is its enterprise corporate networking unit, which Nortel is keen to build up as one of its more competitive assets.

However, it is now an open secret that the enterprise division will shortly go under the auctioneer's hammer

Sale of the enterprise unit
The successful sale of the enterprise unit will mark a fundamental change in how the company is moving forward under Chapter 11 protection and could have serious consequences, as one of Nortel's UK partners tells MicroScope.

"It has tried to sell the carrier and optical business and has not succeeded but it's well known that some people are interested in the enterprise business," he says.

"Nortel could be in a position where they have a buyer for the unit it wants to keep and no buyer for the units it wants to sell."

In recent weeks it emerded that Nortel has held discussions with both Avaya and Siemens Enterprise Communications (SEC), the joint venture between Gores, Siemens and Enterasys. Both businesses are understood to be interested, although neither has yet broken cover.

Details of the auction, which it is understood is being overseen by financial advisory and asset management outfit Lazard, are yet to be made public, but unnamed sources cited in the US press claim that bids are due by Friday 3 April, with the business expected to go for around $500m.

Nortel's spokesman, Mohammed Nakhooda, says, "Planning is underway and any decision will be taken in the interest of shareholders," but gives no further clues.

Keith Humphreys, managing consultant at EuroLAN, believes Avaya's involvement makes little sense, but that SEC's involvement is more plausible.

"Avaya is transitioning to a software company and their VoiceCon announcements about Aura back that up," he says. "SEC could raise the cash and the deal makes sense. The only challenge would be adding Nortel's channel to those of Enterasys and Siemens."

Other suitors
Meanwhile, a plethora of other vendors have been linked to Nortel, including 3Com, which shot itself in the foot at the turn of the century when it quit its own enterprise business.

Ovum analyst Dana Cooperson suggests that Swedish mobility whizz Ericsson and Nokia Siemens Networks would be interested in Nortel's wireless unit

"Ericsson and NSN both have gaps in their wireline portfolios and little position in enterprise. Acquiring significant chunks of Nortel may be attractive to both, and their relatively high cash reserves could make it possible," she says.

A possible approach for unnamed assets by perennial bridesmaid Huawei has again been mooted, although it should be noted that the acquisitive Chinese vendor was rejected twice last year over various approaches, predictably over anti-Chinese paranoia.

Radware walks away with switching prize
Since entering administration in January, Nortel has been successful in selling on one of its business units, the Alteon layer 4-7 application delivery switch business, which was virtually gifted to Israeli security specialist Radware on 1 April.

The two parties finalised the terms of the deal last Wednesday, by which the Israel-based security expert picked up Alteon for the discount price of $18m.

Radware has picked up an absolute bargain with the fire sale of the Alteon unit, which Nortel bought in 2000 for $7.8bn. Even adjusting for inflation Nortel has still lost billions of dollars on the sale.

Included in the acquisition are Alteon's application delivery gear, its tangible and IP assets, inventory and service contracts and an undisclosed number of Nortel employees.

Radware has initiated a five-year product support plan for existing customers and has also committed itself to further develop the Alteon product line. Talk that Nortel will remain involved as an OEM partner remains unconfirmed.

For resellers the deal will alleviates some of the uncertainty that surrounds doing business with Nortel. Many UK channel partners have pledged to stand by the troubled vendor, but have felt the pinch in recent weeks as rivals move in on its patch.

Stuart Brown, product manager at Maxima, says, "[This] is a good sign. [Radware's] assurance to evolve the product line and provide immediate, knowledgeable technical support gives us confidence that our customers will be well served."

Lucinda Borovick, research vice president of datacentre networks at IDC, says, "This move is a positive one for both companies and their respective customers and partners. It will provide a stable path forward for existing Nortel application delivery customers with an established industry provider that specialises in this space and will continue to invest in the advancement of the product line."

This was first published in April 2009

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