Alcatel-Nortel Talks: On or Off?

There has been all kinds of speculation Alcatel is interesting in buying Nortel’s UMTS assets. But is a potential deal off the table now that Alcatel has acquired Fujitsu’s 34% stake in joint venture called Evolium that specializes in UMTS technology?

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2 Responses to “Alcatel-Nortel Talks: On or Off?”

  1. Godzilla Says:

    When Alcatel joined with Fujitsu to do Evolium, they cancelled their inhouse UMTS UTRAN effort, which was a miserable failure. Most of the original development was Fujitsu. This was their most palatable solution, as they did not want to OEM a working product from Ericsson, Nokia or Nortel. NEC was out of the picture also, since they were working with Siemens. Lucent and Motorola never had a commercially functional product to speak of.

    With respect to the current Alcatel-Nortel situation here are two main possibilities:

    1) Alcatel closes with an acquisition of Nortel product (outright purchase, JV, …): this makes their acquisition of Fujitsu’s share in Evolium equivalent to a cancellation fee, and leaves them free to slow down the product, transition to the new product, or outright discontinue it, as needed by their customer situations.

    2) Alcatel leaves Nortel UMTS at the altar: the Evolium acquisition consolidates their ownership and control of the Evolium product, and gives them an option, at least in the short term, should Mr. Z. play hardball.

    Why would Alcatel prefer option 2? They do not. Absorbing Nortel UMTS quadruples Alcatel’s market share, and rids it of a cost ineffective product (evolium). The Nortel product with an increase in volume of 30% would increase its cost efficiencies, thus widening gross margins. Alcatel contributes stronger relationships at carriers than Nortel has, thus leading to an increase in volume of UMTS, as well as other Alcatel products, thus resulting in an increased top line. It;s a virtuous circle.

    However, as good negotiators, Alcatel needs a BATNA to encourage Z to flexibility.

    The Evolium acquisition strengthens Alcatel’s bargaining position by providing that BATNA, and caps the value that Z can realize from his UMTS business

    Any way, that’s one way to look at it

  2. nortel Says:

    thanks for the good insightful – much appreciated.

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