» Archive for the 'Strategy' Category

Ericsson to Acquire Nortel’s GSM Unit Along with Kapsch

Wednesday, November 25th, 2009 by David Goldes

Some of the last pieces of Nortel’s business, its GSM units, will be sold in two parts for $103 million. 

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Ericsson will acquire most of Nortel's GSM business

Telefonaktiebolaget LM Ericsson will purchase the North American GSM business for $70 million and Kapsch CarrierCom of Austria will acquire most of the remaining assets, mostly in Europe and Taiwan, for $33 million.

For Ericsson, the acquisition further solidifies its footprint in North America as the agreement includes the transfer of Nortel’s relationships with mobile operators such as AT&T and T-Mobile.  In July of this year, Ericsson emerged as the winner for Nortel’s CDMA and LTE Access units, gaining key relationships with Verizon Wireless, Sprint, and Bell Canada.  Nortel’s North American GSM operations generated ca. $400 million in revenue in 2008.  That deal has the potential to double the company’s revenue in the region.

“The transaction emphasizes Ericsson’s commitment to the North American market and strengthens our position as the leading provider of telecommunications technology and services in the United States and Canada.” said Hans Vestberg, Ericsson’s incoming President and CEO.

680 Nortel employees are expected to receive offers of employment from either Ericsson or Kapsch.  GSM (Global System for Mobile communications) is the most popular wireless technology standard for mobile phones in the world.  Nortel has been one of the world’s leading suppliers of GSM networks for many years.

Earlier this week, Nortel announced that Ciena, a network infrastructure company, was the successful bidder for the company’s Optical Networking and Carrier Ethernet businesses (see item in this issue under Mergers and Acquisitions).

The sale to Ericsson and Kapsch is subject to court approvals in the U.S. and Canada, which Nortel will seek at a joint hearing on December 2, 2009, and at a later date in France, as well as certain regulatory approvals and other customary closing conditions.

David M. Goldes is the president of Basex.

Breaking Up is Hard to Do

Wednesday, November 25th, 2009 by Jonathan Spira

Sometimes it helps to take a look at how companies in other industries are doing in order to give greater insight into one’s own.

Hummer, Saab, and Saturn may join Pontiac in automotive history

Hummer, Saab, and Saturn may join Pontiac in automotive history

In the automotive world, General Motors, which filed for and emerged from bankruptcy earlier this year, had announced plans to shed its non-performing assets and emerge as a stronger company.  GM has fairly experienced management at its helm yet its plan to dispose of these assets, which include Hummer, Opel, Pontiac, Saab, and Saturn, hasn’t turned out the way it planned, at least not so far.

One of the major stories this week was that tiny Koenigsegg Automotive was backing out of its deal to purchase Saab from General Motors.  Saab, which manufactured a mere 93,000 cars last year, nonetheless dwarfed Koenigsegg, which, with only 45 employees, turns out just a handful of high-priced supercars each year.  Publicly, Koenigsegg cited too many delays in closing the deal but I believe that Koenigsegg realized it might have bitten off more than it could chew with the proposed deal.

GM has had a stake in Saab for almost 20 years with direct ownership for 10 and Saab has a small but loyal following in the U.S.  Unfortunately, low volume car makers aren’t able to benefit from globalization so Saab’s sales in the U.S. suffered greatly at the hands of a devalued U.S. dollar.  Unless the Swedish government steps in, Saab’s fate could be liquidation.

Earlier this month, following months of negotiations with several potential suitors, GM announced it would keep its Adam Opel unit in Europe after agreeing to sell Opel to Austro-Canadian parts maker Magna International and Sherbank, a Russian company.  This stunned the German government, which had been lobbying for Magna, as well as union workers at Opel, after GM announced that manufacturing capacity across Europe will shrink by 25%.

In September, the Penske Automotive Group walked away from its deal to acquire GM’s Saturn division.  Penske had wanted to become a car manufacturer without actually producing cars (imagine that!) – and apparently company management came to its senses and realized that such an arrangement wouldn’t work since no competitor would want to make cars for them.

The deal to sell Hummer to a Chinese company has been delayed by months, despite a preliminary agreement announced in June.  The result is that, given the cloud over its future, no one is purchasing Hummers right now.

What went wrong?  Let’s look at what got GM into bankruptcy court in the first place.

GM’s problems started in the 1960s, when it began to stray from Alfred P. Sloan’s brand and pricing structure that had made the company successful.  From lowest to highest, the “ladder of success” as it was often called included Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac.  Under Sloan, these brands did not compete with one another and car purchasers could move up the ladder within the GM family as their economic status improved.  Starting in the 1960s, the differences that made each brand distinct began to fade and the change was epitomized by the introduction of the 1981 Cadillac Cimarron, a rebadged compact Chevrolet.

Hopefully, GM will learn from its more recent experiences and will look to its history and restore and build upon the differences that make a Chevrolet a Chevrolet and a Cadillac the “Standard of the World.”

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Nortel Liquidation Continues: Company to Sell Optical Unit to Ciena

Wednesday, October 7th, 2009 by David Goldes

Nortel is in the last phases of liquidation.

As part of the continuing saga of the Nortel liquidation, the company announced agreements covering the global sale of its Optical Networking and Carrier Ethernet businesses to Ciena, a network infrastructure company that has competed fiercely with Nortel in the past.  “We believe we are best positioned to leverage these assets, thereby creating a significant challenger to traditional network vendors,” said Gary Smith, Ciena’s CEO.

Under the supervision of bankruptcy courts in the U.S. and Canada, Nortel and its principal subsidiaries, which filed for bankruptcy in January, have entered into a “stalking horse” asset sale agreement with Ciena for its North American, Caribbean and Latin American (CALA) and Asian Optical Networking and Carrier Ethernet businesses, and an asset sale agreement with Ciena for the Europe, Middle East and Africa (EMEA) portion of its Optical Networking and Carrier Ethernet businesses for a purchase price of $390 million in cash and 10 million shares of Ciena common stock.

The agreements cover Nortel’s OME 6500, OM 5000, and CPL platforms, its 40G/100G technology, the related services business, and all patents and intellectual property that are predominantly used in these businesses.  The agreements also provide for the transfer of almost all of Nortel’s customer contracts to Ciena.

The company announced that at least 2,000 employees, more than 85 percent of the workforce of the units being sold, would be offered employment with Ciena.

As in any stalking horse sale, these agreements are far from final.  Nortel’s stalking horse agreement with Nokia-Siemens for its wireless unit ended with Ericsson as the acquirer back in July. The company’s enterprise unit was sold to Avaya, also in July.

On September 30, Nortel announced it will accept bids for its global GSM/GSM-R business.  GSM (Global System for Mobile communications) is the most popular wireless technology standard for mobile phones in the world. GSM-R is a technology that provides a secure communications system for railways operators.

David M. Goldes is president and senior analyst at Basex.

Disruption in the Tech Sector: Oracle to Acquire Sun for $7.4 billion

Monday, April 20th, 2009 by Jonathan Spira

Oracle announced it will acquire Sun, a rival IT firm, for $9.50 per share, or ca. $7.4 billion, or $5.6 billion net of Sun’s cash and debt.  The announcement comes two weeks after IBM ended talks to acquire Sun.

In acquiring Sun, Oracle is upending the IT industry.  Oracle has long-standing partnerships with Sun competitors HP and Dell, as well as with Sun, to provide servers on which to run Oracle databases.  The move puts Oracle into the hardware business, putting the company in even more direct competition with IBM, which sells its own servers in conjunction with its database tools and applications, as well as with HP and Dell.

In making the announcement, Oracle CEO Larry Ellison reminded IBM that Oracle will be “the only company that can engineer an integrated system – from applications to disk…”  IBM sold its disk drive business to Hitachi in 2002.

Oracle will gain ownership of two key Sun software assets: Java and Solaris.  The former, given’s Sun’s use of Java for its Fusion Middleware business,  may very well be Oracle’s most significant software acquisition the company has made (in recent years, Oracle has acquired BEA, PeopleSoft, and Siebel).  Sun clearly didn’t want these assets to fall into the hands of a competitor.  Oracle will also be able to optimize the Oracle database to leverage unique features of the Solaris operating system, although the company took pains to state that it is “as committed as ever” to Linux and other open platforms.

While Sun might have represented a difficult entity for IBM to swallow whole, given the vast differences in corporate culture, the Oracle-Sun combination may be somewhat smoother.  Scott McNealy, Sun’s co-founder and chairman, and Ellison have been close allies and both have engaged in repeated Microsoft baiting over the years.

Sun is promising that the acquisition will add $1.5 billion in operating profit in the first year (the acquisition is expected to close this summer).  Very few acquisitions work as advertised (think Time Warner and AOL) and Sun lost almost $2 billion in the last two quarters.  Most customers of both companies, however, will likely cheer as the acquisition removes much (but not all) of the uncertainty in terms of product direction and support.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

EBay Hangs Up on Skype… But Who Will Call Next?

Wednesday, April 15th, 2009 by David Goldes

EBay purchased Skype in 2005 because it had the resources to do so.  At the time the deal was announced, Jonathan Spira wrote that “the purchase of Skype serves notice to the telecommunications industry that voice is merely another service delivered in a data setting.”

Since then, Skype has indeed become a telecommunications giant, albeit one that didn’t seem to have any of the promised synergies with its new parent.  This week, after months of speculation on the company’s future, eBay announced that it will sell Skype via an IPO in 2010.

Before that happens, Skype will have to resolve an intellectual property dispute with Skype founds Niklas Zennström and Janus Friis.  Joltid, a company they founded, retained ownership of the peer-to-peer technology Skype uses and this was licensed back to eBay.  Recently, Joltid said that eBay was in breach of their agreement and eBay has asked a U.K. court to intercede.

The 2010 date gives eBay lots of time to continue to shop the company.  Negotiations with Skype founds Niklas Zennström and Janus Friis reportedly fell through but, absent the founders’ involvement, does it still make sense for Skype to operate as an independent company?  After all, how extensible – or profitable -  is Skype’s most-used feature: free calls to other Skype users.  The company has over 400 million of them (the figure was 405 million at the close of 2008) and revenue for the year was up an impressive 44%.   In addition, Skype is first starting to explore the business market – and that market is willing to pay for certain services.

The list of potential buyers most frequently mentioned is noticeable for an absence of telecommunications companies such as Deutsche Telekom, AT&T, Verizon, and BT.  Any one of these could build an instant bridge to the future of telephony by acquiring the company.  We’ll find out which telecoms company has a true vision for the future when we see an announcement of Skype’s sale in the next three to six months.

David M. Goldes is the president of Basex.

IBM-Sun Deal Collapses (but should it have ever gotten this far?)

Sunday, April 5th, 2009 by Jonathan Spira

IBM withdrew its $7 billion offer for Sun Microsystems today, putting an end to several months of exclusive talks between the two companies.  Sun, a company that was a pioneer and innovator in high-end workstations and servers that, as the company’s tagline once put it, “put the dot in dot-com,” has struggled in recent years although it has retained a valuable customer base, a treasure trove of intellectual property, and a vaunted research and development staff.

IBM’s decision to withdraw its offer, which dropped from $9.55 to $9.40 per share on Saturday, may be a negotiating tactic and the two sides could theoretically resume discussions.  IBM has not spoken publicly about the possible acquisition but the move would have led to a significant consolidation in the highly-competitive server and data center market.  IBM would end up way ahead of close competitor Hewlett-Packard and would gain entry into other key markets where it has little presence, including the growing storage market, now dominated by EMC and Network Appliance, as an added bonus.

While IBM would clearly benefit from the acquisition (the company has been weathering the economic downturn just fine having seen increased profits despite a 6% decrease in revenue), Sun, on the other hand, actually needs a deal to survive in some fashion.  It’s lost almost $2 billion in the last two quarters and has laid off some 2,800 workers this year as part of a cost-cutting exercise.  Sun has been trying to convince itself, in many respects, that it was a software firm (it fancied itself going head-to-head with Microsoft after acquiring Open Office in 1999) but hardware has always been at the core of its business – and its earnings.  If IBM and Sun don’t return to the table, others may come calling.  Cisco recently entered the server market and would benefit from an instant installed base.  Sun’s customers, largely in government, financial services, and telecoms companies, are a loyal bunch and that loyalty is what has kept Sun intact to date.  Sun’s other businesses, including the Solaris operating system, Web infrastructure software, Java, MySQL, and NFS, would be icing on the cake although an acquirer might even sell or spin some of these off.

In addition, Sun would be a difficult entity for IBM to swallow considering the vast differences in corporate culture (laid-back Sun versus buttoned-down IBM) and IBM’s competitors wouldn’t hesitate to leverage any hiccups to their advantage.  Very few mergers work out as advertised; the promised efficiencies hardly ever seem to materialize (think DaimlerChrysler for a textbook example); and customers, sensing trouble ahead, look elsewhere.

The Wall Street Journal broke the news of the merger last month.  At the close of trading on Friday, Suns shares were at $8.49.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

Whither Nortel? To the competition…

Thursday, March 12th, 2009 by Jonathan Spira

Back in January, in writing about Nortel’s trip to bankruptcy court, I commented that one possible outcome might be that the company break itself up into pieces and that a likely acquirer for the enterprise unit might be Siemens Enterprise Communications.

According to an article in the Wall Street Journal, Nortel may be in talks right now to do just that – and possible acquirers of the enterprise unit include not only Siemens but Avaya.  Nortel has several strong businesses, including its wireless unit, which has continued to see strong sales from U.S. mobile operators, and the enterprise unit, which despite the company’s travails, has a strong customer base and equally strong sales.

The company’s fate may not be determined yet for months but the bankruptcy process in the U.S., as well as in Canada, requires the company to seek the most value for its creditors, so ultimately this scenario may play out.  The Journal article reported that one possible purchaser of the wireless unit might be Nokia Siemens, a joint venture of Nokia and Siemens.  If Nortel’s assets were swallowed whole by the two units Siemens AG spun off, the irony would not be subtle.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Google Gaffe: Gmail Outage Shows Pitfalls of Online Services

Thursday, February 26th, 2009 by David Goldes

Google’s Gmail system was down for 2.5 hours earlier this week, the sixth such outage in the past eight months.  It isn’t unusual that an e-mail system crashes, but most such occurrences are limited to one organization.  When Gmail, a service Google touts to businesses as more reliable and easier to use than Microsoft Exchange and Lotus Notes/Domino, goes down, it makes headlines – as well it should.

Applications that exist “in the cloud,” such as Gmail and Salesforce.com, come with risks that are not readily apparent to many people, especially relatively unsophisticated users and managers in smaller organizations.  Gmail was first introduced in 2004; a business version of the offering was released in 2007.  Its pricing model, $50 per user per year, is very attractive to many organizations that lack the ability to manage their own IT infrastructure.  Yet outsourcing your e-mail, which essentially is what using Gmail amounts to, is far different than outsourcing other aspects of an operation, such as the company cafeteria.  Unless cooking is your core competency, there is no reason to keep that operation in house.  But e-mail is the lifeblood of almost every organization today; rather than pick up the phone, people send e-mail – and they expect that it’s received promptly on the other end.

Just imagine if all of the phone lines to your office failed – not today but ten years ago, when the telephone was the most important means of communication (along with fax, I should add).  That’s what Gmail’s users were facing on Monday.  The silence was deafening.

In addition, after five years and 30 million users, many of them corporate accounts, Google still considers this a beta product.  Apparently, based on the adoption rate, companies have had no compunction about using beta-ware for mission critical e-mail services.

Would a non-cloud based system perform better?  Perhaps not, but when it fails, not everyone would go down at once.

David M. Goldes is the president of Basex.

Whither Skype?

Thursday, January 29th, 2009 by Jonathan Spira

Recently, there has been some degree of speculation in the blogosphere as well as the mainstream press about the future of Skype, given eBay’s disappointing profits in 2008.  The Industry Standard went so far as to predict that Google will acquire Skype by August 31, 2009.

Whether or not there is any truth to the rumor – and this Skype for sale rumor has come and gone several times before -  it does present us with a good opportunity to focus on Skype as a company.

The 2005 acquisition of Skype, founded in 2003 by Niklas Zennström and Janus Friis, by eBay for $2.6 billion was somewhat of a mismatch, yet it allowed Skype to flourish and innovate largely unimpeded. Today, Skype needs to continue to build its business and grow on the successes of last year but eBay may not be in a position to support that model going forward.  Indeed, eBay needs to get its own house in order and improve its financial picture.

As I wrote in my 2005 analysis of eBay’s acquisition of Skype, the purchase of Skype served notice to the telecommunications industry that voice was merely another service to be delivered in a data setting, and that the market for voice calling, as we know it today, was simply fading away.

EBay’s acquisition of Skype made little sense at the time (the company attempted to justify the acquisition by promising to use the service to connect buyers and sellers and it did indeed add Skype functionality to auction pages).  Today it makes even less sense for eBay to continue to hold onto the company and management might as well cash in if they find a willing buyer.

Meanwhile, Skype has become a global telecommunications giant, with 405 million users worldwide (a 47% increase from 2007).  In 2008, Skype accounted for 8% of the world’s international calling minutes.  Surprisingly, or perhaps not, 30% of Skype usage is for business purposes.  25% of Skype-to-Skype calls use video.  And in Q4 2008, Skype experienced a 61% increase in SkypeOut calls (a total of 2.6 billion minutes).

A new parent might be able to find new synergy with the company, which could be used to expand Skype’s current largely consumer base into the small- and medium-sized business market and beyond.

The fact that Skype has continued to grow as an entity despite the mismatch with eBay is a testament to the potential this market has.

EBay purchased Skype in 2005 because it could.  Google, the News Corporation, Microsoft, and Yahoo were all said to have had an interest in acquiring the company but eBay was willing to put up the most cash and, because of the differences in business models, was also willing to leave the company alone to continue to innovate (unlike the course of action that Google or Microsoft may have followed).

In theory, potential acquirers could include Verizon or AT&T, a move that would give one of these traditional telephony companies a gigantic push into 21st century consumer communications.  Microsoft or IBM might also be interested, the latter less so given the consumer nature of the business.  Cisco is yet another contender: they certainly have the cash and Skype’s core functionality aligns nicely with what Cisco is doing in multiple areas but Cisco may simply not be that interested in what is perceived largely as a consumer offering.  We can surely rule out Yahoo, which continues to be on Microsoft’s acquisition radar, and while Google has progressed with its own technology a land grab still might work for them and they have the cash to make the purchase.

Regardless of what transpires, I suspect that we will be hearing a lot more from Skype in the not-to-distant future.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Lotusphere: Blue is the New Yellow

Thursday, January 22nd, 2009 by Jonathan Spira

This week was the 16th annual Lotusphere conference in Orlando, Florida.  It was my 16th as well, although my count includes three Lotuspheres in Berlin.

As has been the custom all these years, IBM once again unleashed a flood of information, both in the general session and throughout the event.  For those allergic to information overload, Orlando was a dangerous place.

The news, from a somewhat modder, hipper, Lotus, which trotted out the Blue Man Group (one had to wonder why it took Big Blue over a decade to book them) and Dan Aykroyd to further underscore the message of collaboration and this year’s theme of resonance.  Last year, incidentally, we said that “yellow is the new black.”   Regardless of color, the tools coming from Lotus allowing knowledge workers to share knowledge and collaborate are stronger and more powerful than ever.

Indeed, resonance can be “very very powerful,” Lotus GM Bob Picciano (attending his first Lotusphere following his appointment to the top position eight months ago) pointed it out in the opening session.  When it’s working at its full potential, he added, it will “absolutely shatter windows.”

With Research in Motion CEO Jim Balsillie present, IBM celebrated the tenth anniversary of the BlackBerry mobile device by unveiling a new BlackBerry client for IBM Lotus Sametime, IBM’s unified communications and collaboration platform, that supports Web conferencing, file transfer, public groups, and enhanced presence.  BlackBerry addicts, excuse me, users, can also open Lotus Symphony word processing documents attached to e-mail or Sametime, with eventual access to presentations and spreadsheets.   They can also download, edit, and post to Lotus Quickr team software.

The new BlackBerry client for IBM Lotus Connections social software platform integrates with e-mail, camera, media player, and the browser, and supports blogs, activities, and communities.  It also supports enhanced profile information including name pronunciations and pictures.  Previously, users on BlackBerry devices could only access Connections’ profiles and tag tools.

But there was more, lots more.

Lotus Sametime
IBM also announced Lotus Sametime 8.5.  Not surprisingly, the new version sports a brand new user interface.  It also includes a tool kit that allows customers to use Sametime to add collaborative capabilities such as presence, instant messaging, and click-to-call, to their business processes.  Sametime features enhanced meeting support, including an Ajax-based zero-download Web client and the ability to add participants by dragging and dropping names.  Other enhancements include improved audio and video, persistent meeting rooms, better support for the Mac and Linux platforms, and the ability to record meetings in industry standard formats.  The Sametime Connect client includes connectivity to profiles within Lotus Connections and pictures from contacts in Lotus Notes.  Sametime Unified Telephony ties Sametime to corporate telephone systems and allows knowledge workers to give out one phone number and set up rules that allow them to be reached based on various conditions (if one is in a meeting, the call could go directly to voicemail unless it’s one’s manager, in which case it would ring on the mobile).

LotusLive
After a year of public beta using the code-name “Project Bluehouse,” IBM announced LotusLive.  The new cloud-based portfolio of collaboration tools and social software supports e-mail, collaboration, and Web conferencing. LotusLive is built using open Web-based standards and an open business model allowing companies to easily integrate third party applications into their environment.  Two LotusLive services are available from the site, Meetings and Events.  Meetings integrate audio and video conferencing; events supports online conferences including registration.

The IBM Web site also lists LotusLive Notes, or IBM Lotus Notes Hosted Messaging in more formal IBM parlance, but unlike Events and Meetings, you can’t sign up and start the service online.  The only button to click is the one that says “Contact Sales.”

Partners for LotusLive: Skype, LinkedIn, Salesforce.com
IBM also announced that LotusLive will support Skype, LinkedIn, and salesforce.com.  LinkedIn members will be able to search LinkedIn’s public professional network from within LotusLive and then collaborate with them using LotusLive services.  Salesforce users will be able to use LotusLive’s collaborative tools in conjunction with the customer and opportunity management tools available in the Salesforce CRM application.  LotusLive users will also be able to call Skype contacts from within LotusLive

LotusLive Engage
IBM also announced the beta of LotusLive Engage, a “smarter” meeting service according to IBM.  Engage is a suite of tools that conflates Web conferencing and collaboration with file storage and sharing, instant messaging, and chart creation.  It allows knowledge workers to continuously engage – not just for one meeting – in a community-like environment.

IBM and SAP present Alloy
IBM and SAP announced their first joint product, Alloy.  Previewed at last year’s Lotusphere under the code name “Atlantic,” Alloy presents information and data from SAP applications within the Lotus Notes client and Lotus Notes applications.

If you want to look back at news from past Lotuspheres, feel free to click back to 2008, 20072006, 2005, or 2004.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.


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