Proposed Sale to Avaya Brings Nortel’s Enterprise Division One Step Closer to Stability

| Sep 15, 2009 | Enterprise Technology and Software | Competitive Update

| Analyst: Brian Riggs

Current Perspective: Slightly Positive
Vendor Importance: Very High
Market Impact: Very High

Event Summary

September 14, 2009 – Nortel announced that Avaya will purchase its enterprise division for $900 million in cash to Nortel, with an additional pool of $15 million reserved for an employee retention program. This includes substantially all of the assets of Nortel's global Enterprise Solutions business, as well as the shares of Nortel Government Solutions Incorporated and DiamondWare, Ltd. The sale is subject to court approvals in the U.S., Canada, France and Israel as well as regulatory approvals, other customary closing conditions and certain post-closing purchase price adjustments.

Analytical Summary

• Current Perspective: Slightly positive on Avaya's winning the auction for Nortel’s enterprise solutions division, because it is brings further clarity to the future direction of Nortel’s enterprise business, letting Nortel partners, customers and competitors begin to make plans for their future relationships with the company. However the work begins after the $915 million cash deal clears regulatory authorities – assuming it does so. Integrating large corporate entities and complex product portfolios is likely to prove a significant distraction to Avaya for months to come.

• Vendor Importance: Very high to Avaya, because the company should be able to leverage the deal to expand its reseller base and its market presence in various parts of the world, as well as eliminate one of its largest rivals across multiple industry sectors.

• Market Impact: Very high on the enterprise market, because it is rare for consolidation on this scale to take place. Competitors and customers in the communications, networking and contact center space should expect a considerable amount of product line rationalization over the next few years as Avaya comes up with the right mix of Nortel and Avaya products with which to go to market.

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Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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Recommended Competitor Actions

• Nortel and Avaya’s rivals in the enterprise space should expect to continue competing with both entities in all sectors for the remainder of this year. With regulatory approval for the acquisition not set for late December at the earliest, both companies will continue actively selling their distinct networking, security, contact center and communications solutions to customers on a global basis.

• Nortel and Avaya’s competitors in the enterprise space should expect a considerable amount of consolidation in the companies’ communications, messaging and contact center product lines with a single, combined, probably Avaya-oriented solution set delivered in the long run. Competitors should also expect Avaya to provide a very cost-effective migration path for Nortel products that are rationalized, as well as support them for years to come.

• Nortel and Avaya’s competitors outside North America should prepare for Avaya’s products to be actively sold through traditional Nortel channels. This could make Avaya’s brand more widely recognized in the various regions.

• It is not only Avaya that will have one less major competitor in the enterprise space. A combined Avaya-Nortel effectively eliminates one of Cisco, Aastra, Alcatel-Lucent, Extreme, Enterasys, HP ProCurve, Mitel, Siemens Enterprise Communications, ShoreTel, 3Com and NEC’s major competitors as well. Without needing to outlay any cash or deal with integration headaches, these companies should focus their sales initiatives against a smaller set of competitors.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Full report in Enterprise Communications, Collaboration and Conferencing, Contact Center Solutions, Enterprise Network Systems, Enterprise Security

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