Can Nortel Pull an AMD on Cisco? Enough To Make It Worth Another Look?

Nortel (NT) is apparently trying to take a page from AMD’s old playbook and sneak up on its much-larger rival-Cisco (CSCO).

Just a few years ago - it’s hard to believe, given AMD’s recent execution issues - but Advance Micro Devices (AMD) snuck up on Intel (INTC) and gave it fits. Intel was off its game. AMD was on it. AMD created a competitive chip line, but more importantly latched on to what customers were really starting to care about-power efficiency. Today, we have a competitive chip market even though AMD is taking a lot of body blows courtesy of Intel.

Now Nortel is attempting to do the same thing: Offer competitive products, tout energy efficiency and get in the door as Cisco customers use the Canadian networking player for price leverage. And who knows? Maybe Nortel steals a few deals.

If you’re an IT buyer you should run to TechRepublic’s Jason Hiner’s blog on Nortel’s plans to upend Cisco. We’ve been bantering about Nortel behind the scenes here and I’ve been a tad dismissive. It’s a little hard to take Nortel seriously if you’ve been following its accounting woes for the years. Nortel appears to have put its bookkeeping problems behind it for what it’s worth.

On further review maybe I should take another look at Nortel. But I’m not buying anything. It’s probably more important that you - the folks with the buying power – check out Jason’s report. A few takeaways:

• Nortel was ridiculously aggressive at Interop Las Vegas a few weeks ago with its 'green marketing, we’re better than Cisco' pitch.
• Nortel built its networking product line around a couple big priorities: energy efficiency and unified communications [UC]. With cost, environmental, and (looming) political pressure building around energy efficiency, that’s a no-brainer.
• Customers are looking for a viable second alternative to Cisco.

My take: It’s good that Nortel is being aggressive, because customers would love a second choice and are very receptive to a little price competition. However, Cisco has also been talking the unified communications game forever so Nortel isn’t exactly breaking new ground. And there’s a big difference in the AMD-Intel, Nortel-Cisco analogy. Intel was off its game. There’s no evidence that Cisco is misfiring.

So the tiebreaker here is really that IT buyers want a strong No. 2 player in their key markets and will give Nortel a look. Microsoft has Linux. Intel has AMD. Cisco could have a tag team of Nortel and Juniper. I’m not sure what it will take to get me on the Nortel bandwagon, but Jason has provided enough ammo for me to give the company a second look.

Comments

[chrylis]

Perhaps. I've used and recommended Cisco products because they're reliable, full-featured, and (generally) easy to configure. However, they're also terribly expensive.

I think rather than Nortel, the dark-horse competitor is Vyatta, which is producing open-source router software that runs on commodity x86 hardware. I've used this type of routing before, and an old Pentium-90 with an ISA network card was able to keep up with a full-speed 10Mb connection.

[VladimirSenkov]

I've been hearing those "competing with cisco" theme and later "number 2 supplier" theme from NT management ever since they acquired Bay. Nowdays there are plenty of suppliers out there and unfortunately NT is not a no 2. If NT management instead focused on areas where they could actually win customers (instead of just drumming up on the competing with cisco theme) they could have bought Juniper back when it was cheap, they could have grown their security products and other acquisitions into something that would continue to be relevant today, they would continue to innovate in the voice space, they would have good products.
Instead, they've spent years and millions on projects and products that didn't go nowhere, there there was F.Dunn, then Bill Owens with PEC acquisition and "getting ship under control" mode of operation, then MikeZ with more cost cutting and outsourcing. No, they aren't trying to be No2. They are trying to get stable and control their expenses so that they're not vulnerable in the market place (MikeZ wouldn't want any hostile takeovers) and they'll perhaps try to make some money in service. The "No2 against Cisco" theme will continue on and off for some time, but it is more of a distraction, it's not for real.
If you are still in doubt, take a look at Nortel's router portfolio. I know, I know, 8600 is a good box, but that's about it, really.
To compete with Cisco you need a little bit more than that in the product department. Where can you get those products? You can either acquire them (unlikely, although another small move like Tasman is possible) or develop (possible, but takes a long time and is very costly, especially given the "milking" culture. Both of these alternatives are incompatible with cost savings agenda currently in place. Better operations is not a replacement for innovation, no matter how much better, and I think they know it.
So service business and deals, deals, deals. Continue to milk huge customer and install bases, sell off a few divisions, cut costs some more. At some point sell the remainder to someone who is in the service business or perhaps even some private equity (if Canada allows that, i doubt it will).