There are two interesting industry trends that bear close watching in 2014. As I noted in my 2014 predictions posting a few days back, the coming year will be a watershed one in almost every sector of the tech industry with a substantial increase in merger and acquisition activities (M&A). This will be driven in some measure by general competitive pressures and technology trends, but also by the shortening of preferred vendor lists by enterprises.  The other is more company specific as the industry and financial community keeps close tabs on the restructuring of Alcatel-Lucent (News - Alert) as CEO Michel Combes continues to implement The Shift Plan. 

With the revelation in various news sources that Alcatel-Lucent is in talk to sell its enterprise business to potential buyers including Unify GmbH & Co. KG, a Gores Group LLC and Siemens AG (News - Alert) (SIE) venture, the two have converged.  Alcatel-Lucent wants out of the space and Unify is looking to increase its reach and its formidability for being on the short list.

An historic shift and an attempt to unify

The interest by Alcatel-Lucent (ALU) of selling its enterprise unit, which had 2012 revenue of 764 million euros ($1 billion), has not exactly been a secret.  The questions have been to whom and for how much. These both remain on the table. ALU and Unify have failed to comment on the speculation of a deal, although it should be noted that just its mere mention has driven up the company’s stock price in trading in Europe.  Plus, Unify is likely not the only potential buyer.  Indeed, there is always the possibility of a bidding war, based on various interested parties evaluation of the value of the ALU installed base. 

Anonymous sources with knowledge of the possible transaction are reported as saying potential buyers are preparing second-round bids. The unit may be valued at as much as 250 million euros (US $341 million), which reported an operating loss of 12 million euros (US $16.4 million) for 2012. It also seems this is going to be on a fast track with speculation a deal could be announced as soon as March of this year. 

The move, as noted continues the shedding of enterprise facing assets by Alcatel-Lucent which last month agreed to sell its U.S. government LGS Innovations unit for an estimated US $200 million. And, while not part of The Shift Plan, ALU had already dismantled part of its enterprise business with the sale in 2011 of its Genesys (News - Alert) contact center business to Permira Advisers LLP for $1.5 billion.

For those like me who have been observers of the enterprise equipment business for years, the deal if confirmed would mark the end of an era, and a passing of the torch. Gone from the industry are such previous dominant names as Nortel (News - Alert).  And even Unify, which until October was known as the Siemens Enterprise Communication is actually a joint venture between Siemens and U.S. private-equity firm Gores Group which owns 51 percent of Unify.  In short, the old guard in the enterprise business (PBXs and key systems) which dominated the landscape have gradually been disappearing as technology, competition and elusive margins have made the space challenging to say the least. Who would have thought only a decade ago that Cisco (News - Alert) and Avaya would be the big names left standing?

As many have stated, Unify is the most likely acquirer since it needs the ALU base and channels to shore up its competitive position not just in North America but around the world.  

While the move will certainly help in the ongoing financial restructuring of ALU it does raise some questions.  In the short term, given that the unit employs roughly 1,400 people in France, how this plays out against CEO Combes’ challenges for dealing with domestic concerns in France about the loss of employment (a government as well as major union concern), is a non-trivial matter that any buyer is also going to have to face.  

On a longer-term view of things, given the blurring of lines between enterprise and service provider as we move into the cloud-based era of “E”verything as a service, it seems that ALU is going to have to clarify the core competencies it will be keeping that will enable it help its service provider customers succeed with enterprises. There also is the issue that jettisoning the enterprise unit means a seat at the table for ALU may become vacant. And, last but not least is the historic and cultural impact of the company that was founded on the invention of the telephone will be out of the customer premises business.

A deal is not official, but there does seem to be a certain inevitability one transpiring.  It is only January 13^th and already the turbulence in the tech sector is validating that this will be a watershed year.  Fasten your seat belts.  It is going to be a bumpy ride.