Light Reading

Matchmaking NSN

Ray Le Maistre
8/2/2012
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7:05 AM -- Speculation about a potential merger between Alcatel-Lucent (NYSE: ALU) and Nokia Solutions and Networks has increased again recently as both vendors try to restructure their way out of trouble. AlcaLu CEO Ben Verwaayen has countered that speculation this week as he discusses his company's current challenges. (See Alcatel-Lucent: Too Little, Too Late?)

But for those interested in NSN's future, you should check out the excellent analysis of potential suitors by Heavy Reading Senior Analyst Patrick Donegan. He argues that of all the possible partners -- including Ericsson AB (Nasdaq: ERIC) and Samsung Corp. -- NEC Corp. (Tokyo: 6701) is the most likely to make a move. There are a number of reasons why that makes sense. (See Who's Going to Buy NSN?.)

Donegan makes a great case for NEC from a macro-economic, cultural, historical and technology perspective. But, digging a bit deeper, there's another reason the NEC/NSN combination makes sense -- it's to do with Service Provider Information Technology (SPIT).

Modern communications equipment vendors can't get by with just great network equipment any more. They need a services (consultancy, systems integration, managed) element, strength in telecom software and IT systems (OSS, BSS, cloud platforms and so on) and global reach and scale.

The strong market leaders, Ericsson and Huawei, have recognized this -- that's why Ericsson acquired Telcordia. NSN also believes this: Its renewed focus is on mobile broadband systems, professional services and Customer Experience Management (CEM), an increasingly important strand in the SPIT sector.

But NSN's broader SPIT story lacks breadth, especially in terms of a broad OSS, BSS and cloud services support systems portfolio. As a major IT/cloud systems vendor, NEC would be a great parent to help NSN be a stronger IT transformation partner to communications service providers (CSPs).

And in building the telecom software side of its portfolio, NEC has shown an appetite for acquisitions. In June 2008 it bought OSS firm NetCracker for US$300 million and subsequently merged it with its existing telecom software assets to create a SPIT giant. Then a few months ago it splashed out $449 million to add billing, customer care and revenue management capabilities to its portfolio by acquiring Convergys Information Management. (See NEC to Buy Convergys Unit for $449M and NEC Shells Out $300M for NetCracker.)

NEC also has a strong mobile backhaul product line that would fill a hole at NSN, which sold its backhaul unit as part of its restructuring process. (See DragonWave to Buy NSN Unit.)

And it's a leading force in one of the most exciting areas of networking development -- software-defined networking (SDN). (See NEC Enhances OpenFlow-based SDN Fabric.)

There are, then, a number of factors that favor a NEC/NSN tie-up. As Donegan points out, such a move would "take a marked break in NEC's corporate culture," but as he also notes, stranger things have happened.

— Ray Le Maistre, International Managing Editor, Light Reading

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exon
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exon,
User Rank: Light Beer
12/5/2012 | 5:25:03 PM
re: Matchmaking NSN


and the name is ALNSN? or maybe "bell labs" (seems to be the only thing left standing with some brand quality)....


anyway if you just consider the portfolios, they have many complementary parts, no doubt about that - NSN recent ditching of Juniper makes it more sensible too. but how on earth they are going to organize this monster (size-wise but mainly complexity-wise) and compete?


This could work if the management stays FAR away from Paris, if they dispose whole parts BEFORE they merge (i could think of the services alltogether to make for leaner organizations).


But who is going to engineer the deal? merkel and hollande?

yarn
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yarn,
User Rank: Light Sabre
12/5/2012 | 5:25:02 PM
re: Matchmaking NSN


Another merger is the last thing that ALU or NSN needs right now. Management of both NSN and ALU needs to put their entire focus on stabilizing the patient and nursing it back to health.

FastCache
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FastCache,
User Rank: Light Beer
12/5/2012 | 5:25:00 PM
re: Matchmaking NSN


Any of these M&A scenarios is likely to result in the accelerated demise of all concerned. Alcatel-Lucent continues to be in denial. Merging with someone else is hardly going to help the process of a turnaround.


Better to exit poorly performing businesses and to focus on true value creating ones.  Customers need to decide who are their strategic suppliers for each part of their network. Subscale players in any technology area cannot serve their customers with the sustained innovation required.

pdonegan67
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pdonegan67,
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12/5/2012 | 5:24:59 PM
re: Matchmaking NSN


Can't say I agree that any of these scenarios will likely lead to the acclerated demise of the acquirer. NEC and Samsung, for example, have a lot to gain from acquiring NSN's account footprint, and potentially some of their product line too. Neither firm has the scope to aggressively leverage price and financial terms as Huawei has done to break into so many accounts.

pdonegan67
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pdonegan67,
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12/5/2012 | 5:24:58 PM
re: Matchmaking NSN


Historically I would agree with you but I think Japan's business culture with respect to international M&A may be changing faster than you think.


The barriers to undertaking a huge deal of this kind are lower than they were a couple of years ago and they may be set to go lower still.


That doesn't make NEC a shoe-in for this deal. But it does means they are a much more plausible candidate for this than they would have been just two or three years ago.

paolo.franzoi
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paolo.franzoi,
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12/5/2012 | 5:24:58 PM
re: Matchmaking NSN


At least the bit about culture.  The Japanese are really not big on any acquisitions and large ones are very out of the norm.


I think that breaking up these firms and selling off some pieces seems the right thing.  They don't seem to understand portfolion management at all.


seven


 

paolo.franzoi
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paolo.franzoi,
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12/5/2012 | 5:24:56 PM
re: Matchmaking NSN


 


I would say that it might be so...and NEC would be the last buy that happens.  Imagine what happens at NSN when every senior manager in the company is fired to be replaced by a Japanese manager.  Should be a great sport to watch them wipe out the dirty gaijin.  :)


 


seven


 

pdonegan67
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pdonegan67,
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12/5/2012 | 5:24:53 PM
re: Matchmaking NSN


Can't agree with you there, I'm afraid. I can't see the bulk of NSN giving Cisco or Juniper anything much besides margin dilution.

allip
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allip,
User Rank: Light Beer
12/5/2012 | 5:24:53 PM
re: Matchmaking NSN


NSN might be a good fir both Cisco and Juniper who have been gearing up to enter


the 4G wireless infrastructure market..

Soupafly
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Soupafly,
User Rank: Light Sabre
12/5/2012 | 5:24:53 PM
re: Matchmaking NSN


What about Dimension Data?


Are they so outlandish......?

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