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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

dav_006 12/5/2012 | 3:52:55 AM
re: Sources: Nortel Sizes Up Sylantro I do hope that Mike Z. knows that to change the corporate culture, reduction in the layers is not the way to do it .. you have to bring in like minded people at different layers of management and not only the top leadership team. Since he started working late last year for 2005 his salary was $252K and his total compensation was $12 Million, and what shocked me was that the CFO made $527K and a bonus of $850K for years and years of restatement, as shareholders people should be jumping up and down, as the stock has been dropping since Mr. Z took over. Well the reason is simple most people expected to get value for what these top people are paid, but when Mr. Z told the analysts that it would take 3 to 5 years to turn the company around, who in there right mind would buy that stock. It is great for the CEO and CFO who can make this crazy money for 3 to 5 years and then run like Frank and John. When look at Motorola the reason he was not made the CEO was simple, he was a great process guy yet lacks the vision for technology. So what I predict is that NortelGÇÖs internal R&D will be hit and hit hard because the Canadian dollar is getting very strong so R&D in Canada will get hit harder than before, and particularly because the new leadership team has no faith in the internal R&D. Ok ..ok I will try to keep an open mind .. and if they get a GREAT CTO they could still do well.

Nortel invested like crazy to build a partnership and a R&D facility in China with Putian, then partnered with Huawei, IBM, LG, Sylantro, with Airspan (for WiMAX), when I look at the 2005 Annual Report I wanted and expected to see a breakdown of reward (financial) based on these brilliant partnerships. I suspect that Nortel just forms these partnerships as a short term measure and lacks the ability to nourish the relationship and formulate a long term strategic partnership that would help both parties. I want to identify a key area that this company is good at, and would be well positioned to leap frog their competitors, as they are not in a position to compete in the commodity space. M&A for a company that makes no money and low stock price is a joke.

In a meeting with John C. (CEO Cisco) he said Nortel is its own worst enemy.
paolo.franzoi 12/5/2012 | 3:52:57 AM
re: Sources: Nortel Sizes Up Sylantro I was under the impression that the Nortel M&A strategy was to be acquired by Huawei.

seven
hitekeng 12/5/2012 | 3:52:59 AM
re: Sources: Nortel Sizes Up Sylantro It is true that Nortel's track record is quite dismal in most of the acquisitions made by its various Lines of Business (Architel, Sonoma, Promatory, Qtera,...). A bright spot is the Cambrian acquisition that gave it DWDM market leadership at the time with the OM5200 platform. It worked out well because and except for ONI's back then, OM5200 led the market with no serious competition to contend with.
It goes to say that unless Nortel is acquiring a smaller company with an industry-leading & innovative product and giving it carrier-grade credibility, its M&A record will continue to suffer unless Mike Z succeeds in turning Nortel's coporate culture around (he is making good strides there thus far!!!).
H
alchemy 12/5/2012 | 3:52:59 AM
re: Sources: Nortel Sizes Up Sylantro Machavelli writes:
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.

I'd point out that Centrex isn't dead. If you look at the FCC data from the regulated ILECs, there are still about 8 million Centrex lines. The majority of business lines sit behind a PBX (and are migrating to an IP PBX) but there's still a solid 10% of the market that wants a Hosted PBX/Centrex solution. The big issue with the model is that key system emulation/line appearances on multiple phones pounds the snot out of a soft switch. All those FORK operations to make multiple phones ring and NOTIFY messages to control the lamps on the phones create huge scaling problems that are probably better solved locally. It has yet to dawn on the SIP weenies that most businesses consider key system emulation a vital feature. It'll take Moore's Law another decade before Sun Netras are fast enough to deal with this.

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.

It's pretty clear that Cisco doesn't have a clue about carrier-class. Buying SA gets them a proprietary digital set-top box solution that is going to be tossed in the rubbish bin by all the cable operators. Cisco is already so entrenched at the major MSOs (Cisco owns cable IP data and have 50%+ market share of cable telephony) that cable executives are giving procurement edicts to shop elsewhere to cut back on the Cisco dominance. The ILECs don't take Cisco seriously and it's unlikely that they will let SA solutions into their networks. Scrawling "IMS" on DynamicSoft boxes in spray paint is a pretty transparent ploy. Chambers flying in with his Gulfstream isn't going to pull it off this time.
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.

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.
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.
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?
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?
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!!
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...
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?
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