VoIP Systems

Sources: Siemens, Nortel, Avaya Mull JV

Siemens AG (NYSE: SI; Frankfurt: SIE), Avaya Inc. , and Nortel Networks Ltd. are in talks about a potential three-way enterprise communications equipment joint venture, according to industry sources.

Siemens admitted it is seeking a new home for the enterprise business of Siemens Communications Group when it announced its carrier equipment joint venture with Nokia Corp. (NYSE: NOK) earlier this week. (See Nokia, Siemens Create Networks Giant.)

Since then, Avaya and Nortel have both been suggested as potential acquirers. But according to a European telecom industry executive, Siemens has not only held talks with those companies separately, but has also discussed a three-way joint venture that would create the world's largest PBX player.

All three companies said they couldn't comment, though the Siemens spokesman added: "There are a lot of things going on, but until something is fixed, it's all speculation." [Ed. note: Huh?]

News of such talks have also spread to the analyst community. Alex Henderson at Citigroup wrote in a research note that "we are hearing Nortel, Avaya, Siemens, and even potentially Alcatel (NYSE: ALA; Paris: CGEP:PA) are in discussion regarding a multi-vendor JV in the enterprise space to create a clear number two choice to Cisco Systems Inc. (Nasdaq: CSCO)."

Earlier this week Siemens AG's CEO Klaus Kleinfeld said he was "talking to a number of interested parties" about his company's enterprise business, which generated revenues of €3.5 billion (US$4.4 billion) in 2005 and has 15,000 on staff. Kleinfeld said Siemens would like to divest the unit but hold on to an equity stake.

Avaya's CEO Don Peterson told Reuters earlier this month that he is interested in a partnership with what he called "parts of Siemens," while Nortel's CEO Mike Zafirovski has made it clear he wants his company to operate only in markets where it is a significant player. [Ed. note: So obviously they won't be making strides in the accounting/auditing industry.] (See Nortel CEO Maps Out His Vision.)

Nortel is no stranger to joint ventures. It has forged a productive JV relationship with LG Electronics Inc. (London: LGLD; Korea: 6657.KS) in Korea, but saw a planned fixed-broadband access tie-up with Chinese vendor Huawei Technologies Co. Ltd. and a mobile equipment relationship with China Putian fall through. (See Nortel's Owens: Krazy About Korea, Nortel, Huawei Kill JV, and Nortel Suffers China 3G Setback.)

The Canadian vendor is under particular scrutiny following the Nokia/Siemens announcement earlier this week. (See Post Nokia Siemens, Whither Nortel, Others?)

Such a threesome would create the world's biggest player in an enterprise voice systems market that was worth $8.1 billion in 2005, says Infonetics Research Inc. analyst Matthias Machowinski. (See IP PBX Revenue Up 23%.)

But he's not sure such a move would make a lot of sense. "Avaya already has a good presence in Europe and made an acquisition there in 2004" when it bought Tenovis. He adds that the enterprise telephony lines of all three companies are very similar, so it wouldn't extend their product ranges much: "They all have large and small PBXs," says Machowinski, who adds that an R&D partnership might make more sense.

But should such a three-way deal take place, the result would be a company with a very strong customer base in Europe and North America, a range of enterprise voice, data, and security products, and combined annual revenues of $11.9 billion, with Siemens contributing $4.4 billion, Avaya $4.9 billion, and Nortel $2.6 billion (figures from each company's latest full fiscal years).

— Ray Le Maistre, International News Editor, Light Reading

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