One analyst has put the deal as a strong possibility:
"While our confidence level on such a deal is not fully 100%, our information is sufficiently credible and timely that we believe it is worth bringing to the attention of investors," wrote Susquehanna Financial Group analyst Joe Chiasson in a note sent to clients yesterday. "At the very least, we are confident that Force10 is more receptive to a potential non-IPO deal than many may perceive, and if a deal is to occur, it would likely happen very soon."
Chiasson puts the price at around "$450 million to $550 million," with most of that being in cash. At least one other Wall Street source says he's heard that Force10 was "in play" and that Nortel might be the buyer, but he had not heard a price.
Light Reading's latest report on the company stated that it has been out raising money -- recently closing a $50 million funding round -- and has a post-funding valuation of $455 million. (See Force10 Orders One More Round and Force10 IPO Still Hanging.)
Nortel and Force10 couldn't be reached for comment.
The rationale for the deal is that Force10's Ethernet switching technology is newer than Nortel's, and it is solidly entrenched in an area where enterprise switching is headed: 10-Gbit/s switching for data-intensive applications.
"Given Nortel’s renewed emphasis on Enterprise networking and ambition to be a solid second vendor to Cisco in the market, acquiring a leading edge product to address the high end of the Enterprise market makes sense," Chiasson writes. "In addition, the fact that Force10 also sells into carrier and Internet service provider markets fits with Nortel’s presence in those markets as well."
Sources say Force10's revenues were heading north of $100 million this year, but the company's monthly cash burn has historically been pretty high, too. One source says the 200-plus person firm is burning around $4 million a month now.
The financial cost of Sarbanes-Oxley compliance and the departure of the company's CFO have likely not helped Force10's IPO prospects.
Force10's focus and its potential in the enterprise market could be very appealing to Nortel, a company still trying to shake a 10-year hangover of being a financial and a strategic disaster. Recently, Nortel's CEO Mike Zafirovski declared the company's strengths would be in metro Ethernet, CDMA, and 4G wireless networks. Nortel's stock has been trading above $2 for an entire month. (See Zafirovski: We'll Get 4G Right.)
Nortel shares were up $0.03 (1.29%) to $2.36 in early afternoon trading on Friday.
NT can kill a company as fast as anyone else out there. They continue to try and be a presence in the ethernet marketplace, but only having a data center presence will not do. Extreme would be a better consideration I believe.
Force 10...this is fantastic news for who? Nortel's history is buy a company, bog it down with 4x the number of people it actually takes to run it, drain it of all resources, including IP, eventually layoff everyone but the Sr. mgmt team that was PUT IN PLACE by Nortel, watch former employees flee for their financial lives (those that DIDN'T get IPO stock) and then listen to the gnashing and wailing as they announce they've lost so much money that they're closing the doors. To Force10 Mgmt. DO NOT GO THERE! STAY INDEPENDENT, STAY TRUE TO YOUR INITIAL PLAN!!! You'll be much happier than taking on the yoke of Nortel.
> Lets hope that by Nortel purchasing Force10 the ones who actually put all of the work into building the company from the groud up get something out of the time they've spent there. But it looks like the only one going the the bank are the VCs and the execs
If that isn't a bitter comment from a Force10 employee, I don't know what is.
Lets hope that by Nortel purchasing Force10 the ones who actually put all of the work into building the company from the groud up get something out of the time they've spent there. But it looks like the only one going the the bank are the VCs and the execs
There sure is a lot of hype surrounding F10. The product is really only suited for data center, research, or super computing environments. It’s a very good packet pump, but they don't have the feature set or architecture to play in the provider edge or TP space. It would require extensive development efforts and major hardware overhauls to support MPLS, VPLS, PWs, etc. They are a hard ASIC and CAM based product and they are already on their 5th & 6th generation spin with the EF and EG cards. It’s hard to believe anyone could respin cards more times than Cisco, but F10 seems to be a champion in this area. Their use of CAMs is expensive and support is minimal for protocol and L2/L3 FIB scaling. The current HW can't scale for provider edge Ethernet or TP applications. These are probably a couple of the reasons why Juniper passed; F10 wouldn't help them in the least.
While they cut an impressive amount of press releases for wins, most of F10 wins are in the research, super computing, and data center space. Many of these deals provide limited reoccurring revenue opportunities. Keep in mind that F10 is playing in a highly competitive space. Cisco, Foundry, and Extreme will drop their shorts to win every deal so F10s margins are likely pushed to the limit. These could be some of the reasons why they haven't gone to IPO.
If NT pulls the trigger, it should be fun to watch. It would take $$$$ and years of work to retool F10 to support anything beyond the space it plays today. It's certainly not up for the PBB and PBT play, but with a 32k MAC scale maybe NT could come up with something like MAC-in-MAC-in-MAC ;-).
Cisco has way more manpower to throw at customers is an important point as well. But the primary reason is the mentality of the majority of IT managers. "no one ever lost their job buying Cisco". It takes less effort to continue to support Cisco technology in the network and this is important to those that merely want to sit in their nests and not really attempt to do what is best for their companies.
I have aften asked the question to people who work as competitors of Cisco "how many times have you lost to Cisco because of their superior technology?" The answer is that this is seldom the case. That is not to say that they don't have decent technology, but that is not the reason they win/others lose.
Cisco gets over the technical "baseline" and then sells expertise, support, delivery, business partnership etc.
Unless you add something more than the value of your hardware, you will be found wanting. Everyone has hardware.
Why is it that basically all the messages stem around how to beat Cisco? Why is it that Cisco is the goal to dominate. Is it simply because they are the "800lb Gorilla?" but there isn't another valid reason? I guess I fail to understand the thought amongst many presenting their thoughts. As an enterprise player Cisco provides the valuable support needed by MANY enterprises who simply don't have the expertise in-house to accomodate new technology adoption. They provide a one-stop shop with support that should be modeled by anyone trying to enter the Enterprise market. As a Service provider player Cisco provides new feature additions, NEBS, OSMINE, Telecordia etc... and has a dedicated tier of support for SP's along with priority service etc... I guess my point is... who in the world could step up and deliver what customer have come to expect from a technology partner such as Cisco? I believe many people are focused on what technology is needed by JNPR, and how they need to lead, and how they get the right pieces etc... but in the end it's just technology and they FIRST need to start with the fundamentals, and that is top-tier support and a focus on subset of customer that they can handle, and handle well.
As CSCO has such dominance no-one is going to be "strong enough" in the enterprise space on their own unless they come up with something compelling to break the Cisco router cycle.
All JNPR products for Enterprise sit at the demarc point, they have never had a LAN presence. I am not sure that they want one as the market is pretty commoditised and it is tough to differentiate until you have the carriers sown up. CSCO do a great job of playing the enterprise and carrier markets off against one another "we will bring you enterprise customers Mr Carrier" and "you should buy Cisco as that is what your carrier will be using Mr Enterprise".
So let's cut the who is stronger than whom argument as you will never change your opinions. Someone needs to come up with a compelling Carrier/Enterprise pitch. I don't see buying F10 as a way of achieving this as the F10 products are anything but enterprise boxes - too expensive and they don't have carrier Ethernet functionality for anything other than server aggregation - now if Nortel was to take the PBT approach and layer that onto the F10 platform you would alleviate the lack of carrier gradeness by decoupling control from forwarding. F10 does great forwarding - it lacks in control plane. Passport 8600 replacement anyone?
This in itself will not dislodge CSCO but it would add to Nortel's arsenal.
JNPR have a dilema - how do you expand your portfolio without damaging what made you successful in the first place. They seem to be having a long debate and have become followers rather than leaders. This cannot be good for them but I would not write them off.
Dislodging CSCO from their dominate position requires a company with forces at the Enterprise and at the Carrier but singing the same song and working a common strategy - Today, consolidation will slow down the immediate threat but may create organisations with the means to start the fight. Sorting out the politics and strategy without strong leadership will be their biggest challenge. I give CSCO another 2 years of dominance and then we will see if any of the others develop what it takes.
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