Alcatel-Lucent sells enterprise networking unit to China Huaxin

The unit's head, now its CEO, has high hopes for the company's communications products and software-defined networking implementations

Alcatel-Lucent has closed the sale of its IP telephony and Ethernet switching equipment activities to China Huaxin. The spun off company will struggle to compete with the likes of Microsoft and Cisco Systems, and will have to make acquisitions of its own to grow.

Both product segments are highly competitive and going through big changes thanks to the growing popularity of smartphones and technologies such as software-defined networking and cloud-based communication services.

Alcatel-Lucent first announced the sale of its Enterprise subsidiary in February, when said it had received a binding offer from Huaxin, an industrial investment company that focuses on information and communications technologies.

Alcatel-Lucent Enterprise CEO Michel Emelianoff has high hopes for the company's OpenTouch platform. It includes Conversation, which lets users start a call on a deskphone and then transfer it to a laptop, smartphone or tablets. Alcatel-Lucent is ahead of the competition in the implementation of software-defined networking, Emelianoff said during a conference call.

Alcatel-Lucent Enterprise will have its headquarters in Colombes near Paris, with about 2,700 employees worldwide.

Gartner analyst Steve Blood , who specializes in unified communications, is cautiously optimistic about Alcatel-Lucent Enterprise's future. The optimism stems from Huaxin's seeming willingness to invest, but success won't come easily for the company in any segment.

"There is nothing wrong with the products, but it's just a very competitive market and companies have tons on other options," Blood said.

Growth largely has to come from acquisitions, he added. Huaxin is ready to make the investments needed for acquisitions, according to Emelianoff.

Huaxin isn't the only Chinese company that wants a piece of the enterprise IT and communications market. Huawei and ZTE are aggressively pushing to get a foothold with large portfolios. Also, earlier this week Lenovo announced its acquisition of IBM's server business is headed towards closing.

This expansion is good for competition, according to Blood. Challenges for the vendors are getting the culture right and overcoming preconceived notions about Chinese vendors. The former is something Huawei has struggled with, for example.

"They are all going to struggle in North America because of the anti-Chinese sentiment in the region ... But Europe is a good opportunity because there isn't the same concern," Blood said.

The sale of Alcatel-Lucent Enterprise is part of Alcatel-Lucent's Shift Plan, launched in June last year, to refocus the company on IP and broadband access.

Alcatel-Lucent will retain a 15 percent minority stake in Alcatel-Lucent Enterprise and is getting €202 million (US$254 million) in cash. Historically carrier vendors have struggled to find success in the enterprise sector, so Alcatel-Lucent holding on to the unit never made any sense, according to Blood.

"Getting rid of the unit was absolutely the right thing to do and it should have done it years ago," he said.

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Tags Mergers and acquisitionsbusiness issuesNetworkingalcatel-lucentChina Huaxin

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Mikael Ricknäs

IDG News Service
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