The Nortel Auction: Winners and LosersThe Nortel Auction: Winners and Losers

Avaya's the big winner--but at a huge risk.

Here's my first take on the winners and losers in the epic auction that ended with Avaya buying Nortel Enterprise Solutions for $900 millon.The most obvious winner is Avaya, because they got what they wanted. There may have been a better way to ensure its place against two massive competitors (Cisco and Microsoft), but I can't think of what it would be. It's a tremendously high-risk move, for the reasons that I spell out below and that others on No Jitter have pointed out. But I'm not sure that not buying Nortel wouldn't have been a bigger risk.

Of course, Avaya also sets itself up to be a really big loser. They paid almost as much for Nortel Enterprise ($900 million) as Ericsson paid for Nortel's wireless divisions ($1.13 billion), for a division that generates half as much revenue and far better margins. Avaya had to almost double its stalking horse bid of $475 million to seal the deal.

A big winner here is Cisco. Avaya may have shot past Cisco in market share as of the deal's closing, but Cisco is almost certain to begin closing the gap again. It's been pointed out here and elsewhere that much of Nortel's channel also carries Cisco, facilitating the shift. So now Cisco can sit back and watch its chief rival deal with an almost $1 billion addition to the $8 billion price tag that Silver Lake and TPG paid for Avaya itself.

Siemens, the other reported bidder loses out on the chance to make a quick, decisive entry into the one global market where they're not a dominant player. Are they a loser? I don't know. Considering the fact that buying Nortel doesn't guarantee you a lock on their entire installed base, the cost for whatever share the eventual buyer winds up with obviously didn't justify a billion-dollar price tag to Siemens.

Siemens may have decided that challenging an Avaya-Nortel deal on anti-trust grounds, even if unsuccessful, was a better competitive move than overpaying for the Nortel base. We don't know yet whether the Nortel deal will face anti-trust challenges, and in Nortel's press conference this morning, Enterprise Solutions president Joel Hackney said the company had "factored in all of that" (i.e., potential anti-trust challenges), and concluded that even in view of this possibility, "We do expect to close by the end of this year."

The final winner: Nortel customers and channel. The uncertainty is over. Hopefully.Avaya's the big winner--but at a huge risk.