Report says it's a possibility, as Alcatel-Lucent looks to shed unit
Is Cisco really looking to buy Alcatel-Lucent’s enterprise business? That’s a possibility reported today by Reuters in a story that states that Alcatel-Lucent is meeting with potential suitors in San Francisco this week.
According to Reuters, Alcatel-Lucent is looking to fetch up to $1.2 billion for its enterprise switching, IP Telephony and contact center software businesses – essentially all of its enterprise operations – in an effort to refocus on core telecom markets and reinvigorate flagging financial results since the merger of Alcatel and Lucent in 2006.
So far, Siemens Enterprise Communications and its private equity owner, Gores Group, appear to be the frontrunner’s for the business, according to Reuters. But Cisco, HP and Avaya are also mentioned as possible suitors.
Why? Alcatel-Lucent’s enterprise business hasn’t fared much better than the overall company since the 2006 merger. The switching business has been stagnant for several years: Alcatel-Lucent’s share of the roughly $18.7 billion worldwide Ethernet switching market has been less than 1.5% for three years, according to Dell’Oro Group, placing them as the eighth or ninth leading vendor.
In enterprise telephony, Alcatel-Lucent is fourth with an 8.9% share of the $12 billion market in 2010, according to Dell’Oro. But that’s down from 9.9% in 2008 while leaders Avaya and Cisco, and No. 5 NEC have gained share since then. Siemens is No. 3 in telephony with a 10% share in 2010, down from 11.4% in 2008, according to Dell’Oro.
And Cisco is in asset shedding mode at the moment. After consecutive quarters of unCisco-like results in which the company saw profit erosion due in part to the distraction of its 30 or so market adjacencies, Cisco is dumping its Flip consumer videocam business and restructuring much of its consumer operations. It’s also shedding 550 people as a result.
Cisco wouldn’t gain much by acquiring Alcatel-Lucent’s enterprise business. Or would it? Cisco already dominates Ethernet switching with 70% share; it’s also No. 2 in enterprise telephony behind Avaya, with more than twice the market share of Alcatel-Lucent – though acquiring that installed base would make it No.1…
The Genesys contact center software business is healthy for Alcatel-Lucent, accounting for 75% of the company’s enterprise revenue. Perhaps Cisco could drive a hard bargain – sub $1.2 billion — for all of Alcatel-Lucent’s enterprise business, kill the less than $250 million switch stuff and gain a nice 9% additional share — $1 billion+ — of telephony, plus contact center software.
Or it could keep the switches and offer some raw density and bandwidth without all of the Cisco feature gunk; or gut them and spread any relevant technology across the Catalyst and Nexus lines.
Regardless, it seems Cisco – and, perhaps, HP, Avaya and Siemens Enterprise – would benefit most from Alcatel-Lucent’s enterprise telephony business. Those are some nice switches, those new OmniSwitch 10000 and 6900 platforms – but that installed telephony base is the real diamond in the Alcatel-Lucent rough.
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