Alcatel-Lucent looking to sell enterprise business: Report

Alcatel-Lucent is reportedly shopping around its enterprise switching, IP telephony and contact center businesses in an effort to boost its financial performance by focusing on core telecom markets.

The unit could fetch up to $1.2 billion, and potential buyers include Cisco, HP, Avaya and private equity firms like the Gores Group, according to a story in Reuters. Alcatel-Lucent is meeting with prospective buyers in San Francisco this week, according to Reuters, which cited unnamed sources.

Alcatel-Lucent declined to comment.

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Reuters says the frontrunner in the talks is Siemens Enterprise Communications (SEN), which is 51 per cent owned by Gores. SEN and Gores acquired enterprise switch maker Enterasys in 2008.

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.

Talks of a buy-out of Alcatel-Lucent's enterprise division have circulated since 2009 when the telco giant signed a strategic agreement with HP.

Qatalyst Partners is advising Alcatel-Lucent on the sale, according to Reuters. Alcatel-Lucent has asked for indicative bids by early May and has requested cash offers, but the deadline could move around depending on the number of parties expressing interest, according to the report.

Any buyer would acquire a business that's been stagnant in Ethernet switching and IP telephony for many years. Alcatel-Lucent's share of the roughly $18.7 billion worldwide Ethernet switching market has been less than 1.5 per cent for three years, according to Dell'Oro Group, placing them as the eighth or ninth leading vendor.

Cisco dominates that market with a 70 per cent share, while HP is second with 10 per cent.

Despite being buoyed by several large government and telco customers, difficulties with both sides of the business have led to pressures in Australia to cut down on the local staff count. In June last year, the company cut more than ten per cent of its local headcount in permanent and contractual staff, with rumours of further cuts and hiring freezes to be placed on the local business this year.

Recently, Alcatel-Lucent has introduced some enterprise and data center switches which 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 per cent share of the $12 billion market in 2010, according to Dell'Oro. But that's down from 9.9 per cent 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 per cent share in 2010, down from 11.4 per cent in 2008, according to Dell'Oro.

The growth engine in Alcatel-Lucent's enterprise business is its Gensys contact center software business, which accounts for 75 per cent of the company's enterprise revenue, according to the Reuters story.

Read more about data center in Network World's Data Center section.