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August 22, 2007


Q and A: NEC's Acquisition of Sphere Communications

By Mae Kowalke, TMCnet Senior Editor


Earlier this month, business communications solution provider NEC (News - Alert) announced its plans to acquire Sphere Communications, a company that specializes in communications software for service oriented architecture (SOA)-based systems. The $42 million deal is the latest chapter in M&A activity for the business communications market.
 
Once the merger is complete, Sphere’s operations will become part of NEC’s Enterprise Solutions Business Unit. NEC indicated in its announcement that the acquisition will help increase its presence in the enterprise IP communications solution market.
 
To get a better sense of what this deal means, both for the two companies involved and the broader communications market, TMCnet asked Jim Burton, founder of CT Link (a consulting firm), to comment. His perspective provides valuable background on what’s next for NEC, Sphere and the IP communications market.
 
TMCnet: What does the acquisition of Sphere say about the IP communications industry broadly?
 
JB: There are several shifts taking place with the end result being a shift from silos of communications like IP PBXs, voice mail and instant messaging to unified communications (UC). There are two other shifts to note. The first is a shift from hardware to software—TDM switches to IP switches. The second is a shift similar to the one we saw in the computer industry where companies like Digital Equipment Corp (DEC) stayed vertically integrated (hardware, software, applications) and as a result didn’t make the change as the industry moved to a horizontal model. In the horizontal model, best-in-class companies like Microsoft (for the operating system), Intel (News - Alert) (processors) and Dell and HP (PCs) offer more specialized solutions.
 
TMCnet: What are some other recent IP communications mergers that exemplify current M&A trends in the industry?
 
JB: I think the story here is how some companies are going private or staying private. Avaya (News - Alert), for example, is going private. Inter-Tel is also going private as a result of its acquisition by Mitel. Meanwhile, Mitel has been talking about going public for some time. All these companies will see earnings volatility as they change their business model from hardware vendors to application vendors and system integrators.
 
TMCnet: How do you see the operations of Sphere and NEC complementing each other?
 
JB: Sphere will provide NEC a platform to attract application developers that will use the solution to integrate communications into business processes. NEC will provide many of the components required for a UC solution, like end points (phones) and systems integration.
 
TMCnet: Looking down the road a few months or a year, how do you see this merger affecting the operations of Sphere and NEC?
 
JB: Sphere will become an important part of NEC’s application offering and be a major force behind NEC entering the UC market. Sphere should grow in size and importance to NEC’s overall UC Strategy. NEC will migrate form a hardware company to a provider of vertical market solutions and systems integration.
 
TMCnet: More broadly, what’s your take on mergers in the IP communications industry?
 
JB: Companies need to change their business models and one way to do that is with acquisitions.
 
TMCnet: What else do you think people should know about Sphere’s acquisition by NEC?
 
JB: NEC is working hard to be a strong Microsoft (News - Alert) partner. This acquisition may look like NEC is electing to use Sphere’s platform rather than Microsoft’s. Over time we will see how NEC manages the transition. In the near term it provides NEC with a platform to attract developers that can use a wide range of NEC products. NEC has a much wider range of products than any other Microsoft UC Partner. This will help NEC in its quest to become a leader in vertical market applications (and associated products).
 
To learn more about the IP communications market, please visit Sphere’s TMCnet.com channel, IP PBX. If you’re attending INTERNET TELEPHONY Conference & EXPO West 2007 next month in Los Angeles, California, be sure to stop by Sphere’s booth, #320.
 
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What’s the best resource to learn about latest trends in the IP communications industry? Why, INTERNET TELEPHONY Conference & EXPO, of course. ITEXPO West 2007 is just around the corner—this year it’s being held at the Los Angeles Convention Center in California, Sept. 10-12. Register here. Preview sessions, speakers and exhibitors.

 
Mae Kowalke previously wrote for Cleveland Magazine in Ohio and The Burlington Free Press in Vermont. To see more of her articles, please visit Mae Kowalke’s columnist page. Also check out her Wireless Mobility blog.


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