Avaya / Nortel

Enterprise Solutions

Avaya completes its acquisition of Nortel Enterprise Solutions

 

Why did Avaya acquire Nortel Enterprise Solutions (NES)?

The addition of NES, including Nortel Government Solutions, will expand Avaya's global coverage, enlarge our portfolio of systems and services, and increase our expertise and specialization. This is a strategic opportunity to acquire talent and complementary assets and position the combined businesses for growth and success. We are committed to protecting the communications investments of our combined customers and to effectively executing the integration of Avaya and NES.

 

I D C A N A L Y S T C O N N E C T I O N
Abner Germanow
Director, Enterprise Communications Infrastructure

Ava ya's Acquisi t ion of Nor tel : What i t Means
for Customers
December 2009
Avaya has acquired Nortel's Enterprise Solutions assets (as well as shares of Nortel Government
Solutions and DiamondWare) for $900 million in cash and an additional $15 million reserved for an
employee retention program. The combined Avaya-Nortel entity could achieve worldwide market
share of roughly 33% of the IP telephony market.
The following questions were posed by Avaya to Abner Germanow, Director of IDC's Enterprise
Communications Infrastructure research, on behalf of Avaya's customers.
Q. How should I evaluate my current Nortel platform investments now that they have
been acquired by Avaya?
A. Fundamental to Avaya’s customer-migration strategy is enabling and simplifying enterprise
communications in multi-vendor environments. Nortel customers should be comforted by the
fact that Avaya’s next-generation platform, Aura, was specifically designed to leverage legacy
technologies and infrastructure components.
Furthermore, given the number of alternatives in the market and the history of long support
cycles from both Nortel and Avaya, IDC believes it is unlikely Avaya will make any drastic
changes that force Nortel customers to rip and replace existing investments. In fact, IDC
expects Avaya to create phased migration plans specifically tailored to the Nortel customer
base and to be fully committed to tight integration of Nortel and Avaya platforms.
Platform change in any environment requires a view of the pace of change in the platform
itself. In the case of voice, platforms are migrating faster now than ever before. The rate of
growth and change in communications no longer supports the assumption that a
communications platform will remain a static entity for the next 10 years as the adoption of
new communications methods rise and fall.
Fortunately, the maturation of the session initiation protocol (SIP), and the evolution from call
routing to session management, means many existing systems with SIP support will continue
to play a role in the communications infrastructure for some time. Looking forward, optimizing
the capabilities and efficiencies of the entire communications infrastructure will quickly
become more important than individual components, largely regardless of the technology
supplier.
Q. What are the advantages that come with industry consolidation?

Standard customer advantages that accompany industry consolidation include increased
professional and managed services expertise and scale, financial stability, and combined
R&D efforts. In the current communications/IT environment, companies should also take
advantage of evolutionary and solution-oriented messaging and alignment within the newly
combined entity. Nortel customers should look to fill solutions gaps that currently exist within
their infrastructures with the most optimum solutions from either Avaya or Nortel.
Q. In the face of industry consolidation, do I need to change my communications
strategy?
A. The organizational structure and technology needed to support the communications needs of
organizations is in the midst of significant transformation. Ideally, organizational changes
should be made in anticipation of pending changes in technology architectures. Industry
consolidation unto itself doesn't require a shift in strategy. However, if your organization still
treats voice as a distinctly separate department from information technology, then a more
significant review is warranted.
Today, communications strategies need to be closely aligned with larger IT initiatives such as
service-oriented architecture (SOA), platform consolidation, and application centralization.
New communications methods appear every year from social networks, video collaboration,
instant messaging, and other mobile and desktop tools. However, it's no longer viable to
continually add these new tools in a siloed fashion without either consolidating existing
applications or enabling a consistent level of integration across multiple communications
tools. For example, few companies would consider deploying video conferencing without
integrating it with existing call routing and calendaring resources.
Q. What factors should be driving my evaluation of new communications investments?
A. Companies that fail to evaluate communications solutions based on the solutions’ abilities to
address current and future business objectives are setting themselves up for internal and
competitive failure. Current business objectives should be both tactical (reducing TCO,
consolidating systems, centralizing systems management, carbon footprint reduction, etc.)
and strategic (increasing productivity and collaboration, customer retention and acquisition,
accelerating business process, etc.).
At the same time, future-proofing new communications solutions should be done in
conjunction with protecting legacy investments. This will allow for maximum TCO savings,
while at the same time establishing an architecture ready for optimizing business processes,
applications, and user productivity in the future.
Communications solutions can no longer be thought of in silos separate from business
processes, business applications, or one another (e.g., voice and video). Because voice,
video, and conferencing are becoming IT assets, the evaluation of potential communications
solutions has to align with larger IT initiatives including virtualization, SOA, platform
consolidation, and cloud computing, as well as with evolving end-user needs. Prospective
buyers need to have discussions with their providers around open standards and their ability
to interoperate in multi-vendor environments.
Q. Do I need to move to SIP?
A. Adopting SIP-enabled session managers/IP PBXs that support legacy telephony standards
allows companies to migrate in phases and at their own pace to next-generation IP
communications platforms. Therefore "moving" to SIP in this sense innately helps protect
existing investments.
©2005 IDC 3
At the same time, SIP is the communications standard that all real-time sessions over IP
networks must comply with moving forward, and therefore "moving" to SIP in this sense
allows companies to begin to establish a multimedia-ready, unified communications
architecture.
With that said, migrating immediately and entirely to a SIP-based architecture is neither
necessary nor encouraged in most cases, as existing analog, digital, and IP-based systems
can interoperate and share applications with SIP-based ones.
A B O U T T H I S A N A L Y S T
Abner Germanow is the Director of IDC’s Enterprise Communications Infrastructure services. In this role, he oversees a
team of industry experts and their comprehensive research and analysis on evolving enterprise network infrastructure
markets, including wireless LAN, IP telephony, LAN switching, and enterprise routing. Mr. Germanow is a well respected
industry analyst providing in-depth insight and intelligence on shifting enterprise network market trends and their affect on
mobility, servers, and storage.
A B O U T T H I S P U B L I C A T I O N
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Is Avaya financially healthy enough to fund this acquisition?

Yes. Avaya is financially healthy. The company has demonstrated strong business momentum during the past 18 months. Specifically, Avaya has achieved significant operational improvements and changes to our cost structure and has averaged $500M in cash flow through the last 5 years. We also improved profitability and exited the fiscal fourth quarter with 21% EBITDA, Avaya’s highest ever, despite the challenging economy.

Kevin Kennedy
Avaya President and CEO..CUSTOMER LETTER

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