HP likely buyer for ALU's enterprise unit
Despite turnaround, French firm looking to reduce costs further and sell corporate telecoms arm for about $2bn
Published: 18 April, 2011
READ MORE: M&A | Alcatel-Lucent | Hewlett-Packard
Alcatel-Lucent is on the brink of a turnaround, but CEO Ben Verwaayen is still aware of how much the firm's survival has owed to cost reduction as well as organic growth - and he does not intend to stop trimming the firm's expenses. His latest move is to sell off the enterprise telecoms unit, with Hewlett-Packard tipped as a likely buyer.
Like Cisco, ALU seems keen to refocus on a smaller number of core businesses where it can really shine. Although it is extending its range of services, all these will be geared to the wireless and wireline carrier base. Products targeted at other groups such as corporate IT departments will be sold off.
The enterprise equipment business represents about 10% of ALU's total revenue or about $1.5bn. Its appeal to HP, which has significant corporate telecoms business, is clear, but the unit might also appeal to Ericsson, which has been pushing slightly beyond its traditional cellco base, or even Microsoft or IBM. If ALU cannot get a decent price (probably $1.8bn to $2bn), it may consider a spin-off, say reports.
Enterprise telecoms is a market entirely dominated by two players, Avaya and Cisco, which tussle for top spot on about 21% share apiece. After them come Siemens on 9.3%, according to recent figures from various sources, and then ALU on 8.7%. The sector is ripe for a shake-up as players decide whether to refresh their switches and IP-PBXs as they address cloud computing and new corporate telecoms platforms. It seems ALU may have decided that required shift is too much effort for its small share, and to cede to Cisco.
HP is considered the most likely buyer because its networking communications division already has a strategic alliance with ALU in this area, and is just three years into a 10-year agreement. It is keen to compete more aggressively with Cisco here, especially in VoIP.
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