Alcatel-Lucent confirms Enterprise business may be sold

All options are being considered, including discussions with third parties

Alcatel-Lucent this week confirmed it is "exploring strategic options" for its Enterprise business, a non-core asset that's been reported to be shopped around for a possible sale.

The company announced it was exploring options to "enhance the future opportunities of its Enterprise business." All options are being considered, including discussions with third parties, Alcatel-Lucent said.

In April, reports surfaced that Alcatel-Lucent was engaged in discussions with several parties involving a sale of the business. The unit could fetch up to $1.2 billion, the reports stated, identifying potential buyers as Cisco, HP, Avaya and private equity firms such as the Gores Group - with the frontrunner being Gores' Siemens Enterprise Communications business.

At that time, the company would not confirm those reports.

Alcatel-Lucent said this week it is holding meetings with its Enterprise employees, and that no decision has been made yet on what course of action, if any, it will pursue with the unit.

Alcatel-Lucent is looking to turn around flagging financials in the wake of a difficult merger between France's Alcatel and the U.S. telecom equipment company Lucent in 2006. Since then, the value of the combined company has decreased and Alcatel-Lucent has struggled financially.

The Alcatel-Lucent Enterprise business includes enterprise Ethernet switching, IP telephony and contact center operations. The crown jewel, according to some observers, is the Genesys contact center software business, which accounts for the lion's share of revenue from the unit.

But the business has been stagnant in Ethernet switching and IP telephony for many years. Alcatel-Lucent's share of the $21 billion worldwide Ethernet switching market has been less than 1.5% for three years, according to Dell'Oro Group, placing them as the eighth or ninth leading vendor.

Cisco dominates that market with a 65% share in the first quarter, while HP is second with 11.2%.

Recently, Alcatel-Lucent has introduced some enterprise and data center switches that have impressed analysts in that market. The OmniSwitch 10000 is a 5Tbps core switch designed for 40/100G Ethernet support, and the OmniSwitch 6900 top-of-rack switch plays a pivotal role in Alcatel-Lucent's data center architecture.

In enterprise telephony, Alcatel-Lucent is fourth with an 8.9% share of the $12 billion market in 2010, according to Dell'Oro. But that's down from 9.9% in 2008, while leaders Avaya and Cisco and No. 5 NEC have gained share since then.

Siemens is No. 3 in telephony with a 10% share in 2010, down from 11.4% in 2008, according to Dell'Oro.

Analysts say Alcatel-Lucent should have sold the business years ago.

"Is this confirmation a surprise?" asks Steve Hilton, principal analyst at Analysys Mason. "Yes. They should have sold the division two years ago and I'm sure they would have sold it had markets been stronger.

"The unit is underperforming and frankly it's tertiary to Alcatel-Lucent to begin with," Hilton says. "No need to keep something that isn't your core business, especially when your core business isn't exactly setting sales records."

Hilton added Huawei to the list of possible buyers, which would help jump-start the Chinese vendor's European sales efforts, he says. But he sees the most likely outcome a sale to private equity.

Read more about lan and wan in Network World's LAN & WAN section.

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