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VoIP Systems

Sources: Nortel Sizes Up Sylantro

Nortel Networks Ltd. is on the verge of garnishing its VOIP equipment business by taking a controlling stake in hosted VOIP systems specialist Sylantro Systems Corp. , according to industry sources.

The Canadian giant's new management wants to invest about $30 million in the IP centrex firm to gain a stronger foothold in a fast-growing market, according to one source, who requested anonymity. Nortel's recently-appointed Chief Strategy Officer George Riedel is believed to be spearheading the giant vendor's investment effort.

The source says the investment would give Nortel a controlling stake in the company, enable it to advance its position in the IP centrex market, and allow the carrier to scale back internal R&D on its own technology. That source also says Nortel approached other IP centrex players about potential relationships.

Another industry executive, who also spoke on condition of anonymity, says Sylantro has been actively seeking a major partner to help it take its hosted PBX technology to the next level and provide additional capital backing. Sylantro recently raised $11 million from its existing investors, and had tried to keep the funding quiet. (See Sylantro Raises Another $11M.)

Sylantro executives weren't immediately available and had not returned calls as this article was published. Nortel says it never comments on industry rumor and speculation.

Nortel and Sylantro are not currently partners, though the two did announce technical compatibility, following SIP interoperability testing between Sylantro's feature server and Nortel's Communications Server, in September 2005. Nortel has had some success with its hosted IP applications platform, notably at BT Group plc (NYSE: BT; London: BTA), but is believed to want to ramp up its activities in this sector. (See BT Picks Nortel for 21CN Centrex.)

Sylantro does have a number of equipment vendor partners, though, including Alcatel (NYSE: ALA; Paris: CGEP:PA), Siemens Communications Group , Cisco Systems Inc. (Nasdaq: CSCO), and Juniper Networks Inc. (NYSE: JNPR) -- Riedel's former employer before he joined Nortel. Riedel's current role at the Canadian vendor includes responsibility "for leading the Company's corporate strategy including business development and mergers and acquisitions." (See Nortel Poaches Juniper Strategist.)

Nortel's CEO Mike Zafirovski has been shaking up the vendor since he joined late last year, employing new senior people, such as Riedel, and implementing a new strategy that, he has stated, would include M&A activity. (See Nortel CEO: We're Ready to Deal.)

Zafirovski has also stated he wants Nortel to have a 20 percent stake in the sectors where it does business –- a controlling stake in Sylantro would, in an indirect way, give Nortel that position. He has also identified IMS (IP Multimedia Subsystem) as a key market for Nortel: Sylantro has developed its technology for IMS and Web services environments. (See Sylantro Unveils App Server.)

Sylantro is regarded as one of the leading independent vendors in the hosted VOIP applications market, along with some time rival BroadSoft Inc. . Sylantro names AT&T Inc. (NYSE: T), China Unicom Ltd. (NYSE: CHU), Qwest Communications International Inc. (NYSE: Q), and Swisscom AG (NYSE: SCM) among its big name customers.

— Ray Le Maistre, International News Editor, Light Reading

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digits 12/5/2012 | 3:53:12 AM
re: Sources: Nortel Sizes Up Sylantro What should Nortel's M&A strategy be? SHould it find some key niche players and try and build positions in some key areas such as IMS, Ethernet, edge routing, and IPTV?
jasanz 12/5/2012 | 3:53:10 AM
re: Sources: Nortel Sizes Up Sylantro Something that Nortel already understands and wans to improve... I still remember Bay Networks...
ThurstonHowell3rd 12/5/2012 | 3:53:08 AM
re: Sources: Nortel Sizes Up Sylantro Heck - I remember when Bay was Synoptics and WellFleet - as any original Proton would ;-)

Nortel has no App server worth a lick - the market for IMS is emerging and voice will quickly become integrated with more sophisticated services. Unless Nortel extracts their Canadian head from their Canadian bacon the market will pass them by and leave them standing on the corner with a hand full of A-Links.

They need to do something fast and Sylantro is as desperate for a partner as Gary Busey is in the House of Blues on a Saturday night. Who cares their technical common ground is they can both spell SIP ;-)

Now Gilligan - Fetch me another drink... and don't forget the umbrella!!
dljvjbsl 12/5/2012 | 3:53:07 AM
re: Sources: Nortel Sizes Up Sylantro the market for IMS is emerging and voice will quickly become integrated with more sophisticated services

What services are emerging that can be implmented with IMS? Why would customers buy such servcies from telpehone cattiers and telephone equipment vendors?

IMS solves the subscriber authentication problem for carriers. This may have some use in the supplying of applications to mobile employees. However why woudl a company wish to pay a carrier money for the creation of a VPN-like connection to their employees cell phone. It would seem simple enough to create the secure connection directly given a WiFi hotspot.

Given that the issue of service composition in IMS is in now way solved, how can IMS be anything other than a AAA application for carrier services?
donniall 12/5/2012 | 3:53:05 AM
re: Sources: Nortel Sizes Up Sylantro This appears to signal a Nortel commitment to carrier services and possibly a scale-down in enterprise efforts going forward?
dav_006 12/5/2012 | 3:53:02 AM
re: Sources: Nortel Sizes Up Sylantro Nortel I think has learnt a big lesson they know that the have failed to capitalize on their own innovative ideas and breakthrough technologies. This is problem inherent in typically large organizations due to political conflicts, bureaucracy, inflexibility, and the design of their compensation systems. Well obviously the currently example is the serious failure of Neptune. The second failure is their inability to capitalize on the very costly M&A activity they got very excited about and lost focus on why and what they were buying.

I might be giving Nortel more credit than they deserve but they might have learnt about their weakness, and now they are going crazy formulating partnerships. In these partnerships they ensure that the contractual agreements are formulated in such a way that, Nortel is the controlling member on the board with the appropriate voting rights.

What this means is that shareholders could end up making money but the R&D staff are in big big trouble. This is because NortelGÇÖs leadership team has lost their faith in their own R&D activity.
jacky lee 12/5/2012 | 3:53:02 AM
re: Sources: Nortel Sizes Up Sylantro I think the Nortel M&A strategy must focus in ip regions and must own more ip products rapidly. so,the wise way is to buy a asia company with better cost and advance technologe in ip like harbournetworks in china who was in the rumor of siemens AG M&A.
alchemy 12/5/2012 | 3:53:01 AM
re: Sources: Nortel Sizes Up Sylantro Metropolitian tells us:
Interestingly enough, Cisco is one of the most successful acquirers. They have a well defined process for screening for potential companies early on, they target small companies only and have a dedicated M&A team that integrates the new company from day 1.

Right. Scientific Atlanta is a classic small company. $43/share, $6.9 billion market cap.
Metropolitian 12/5/2012 | 3:53:01 AM
re: Sources: Nortel Sizes Up Sylantro Historically, across all industries 80 to 90% of all M&A fail. Companies often overpay for assets, they have difficulty retaining key individuals in the acquired company and acquisitions are made with little long term planning in mind. They are often ego plays.

The Nortel landscape is littered with countless failed acquisitions because Nortel fails on all 3 counts consistently. Bay Networks had a 15% market share and now is not even on the radar screen 8 yrs later.

Interestingly enough, Cisco is one of the most successful acquirers. They have a well defined process for screening for potential companies early on, they target small companies only and have a dedicated M&A team that integrates the new company from day 1.
Machavelli 12/5/2012 | 3:53:00 AM
re: Sources: Nortel Sizes Up Sylantro >>>>Right. Scientific Atlanta is a classic small company. $43/share, $6.9 billion market cap.
>>>>

Where or not it is a small company is not the issue.

With an investment in Sylantro, Nortel decides it wants to pursue a niche within in a niche (Centrex IP). A really stupid move. These guys really don't know where the future of telecom is.

With an investment in Scientific Atlanta, Cisco is on track with being a leader in the converged telecom future of telephone, internet and television. A much more intelligent investment.

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