Alcatel-Lucent In Talks To Sell Enterprise Business

Alcatel-Lucent this week said it's in talks with Chinese investment firm China Huaxin to sell its enterprise business, confirming years of speculation that the French telecom and networking company is seriously weighing a sale of its commercial unit.

In its fourth-quarter earnings release Thursday, Alcatel said it is in "exclusive discussions with" -- and has received a binding offer from -- China Huaxin, a technology-focused investment firm, for its enterprise business in a deal that would value the unit at roughly $364 million.

Under terms of the deal, China Huaxin would hold an 85 percent stake in Alcatel's enterprise business -- which includes unified communications, wireless, networking gear and phone systems -- and Alcatel would maintain a minority stake of 15 percent.

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Alcatel expects a formal agreement to be signed in the second quarter and the deal to close in the third.

Based in Paris, Alcatel-Lucent has been steadily building out a North American channel presence over the past few years. In 2012, the company staged a complete overhaul of its North American channel program, aimed at eliminating channel conflict, increasing collaboration between its direct and indirect sales teams, and making the program more consistent with Alcatel's global channel program.

Alcatel today has roughly 300 North American partners.

According to David Parker, head of North American channel sales at Alcatel, the company hopes to continue driving its North American sales through the channel, should the deal with China Huaxin go through.

"From a strategy point of view, what I understand is that we are looking to further enhance our indirect model, which, for me, is really exciting and it's the right model for us to move forward," Parker said.

Parker couldn't confirm whether China Hauxin will continue to leverage the same indirect model if the deal is finalized.

"The only answer I can give, because it's early days and we are still in the exclusive negotiation period, is that an efficient go-to-market model and a productive go-to-market model in this day and age, and with the technology we have in our portfolio … is best suited to an indirect model of coverage and leverage," Parker said.

David Carissimi, COO at Icon Voice Networks, an Irving, Texas-based solution provider and Alcatel-Lucent partner, said Alcatel selling off its enterprise unit is a good way for Alcatel to "give lifeblood" back to that part of its business, but that, as a partner, he is definitely preparing for a change.

"Do I lose sleep about it? No. But do I have a contingency plan if there is a radical change? Yes. Every business does," Carissimi said. "If you lose partner A, then you have a vested interest in partner B and C."

Carissimi said Alcatel makes up a "substantial" portion of Icon Voice Networks' overall business, which grew just under 20 percent last year. That said, with the looming possibility of a sale, he said he expects some customers, at least for now, to "shy away" from Alcatel products.

"We are going to lose some short-term deals on this, but companies are bought and sold every day," Carissimi said. "For us, we will just continue to move forward until we know something definitively that's negative."

The sale of Alcatel's enterprise business would be part of the The Shift Plan, a major restructuring initiative rolled out by Alcatel CEO Michel Combes in June. The aim of the plan is to cut costs and sell off select Alcatel assets with the goal of generating 1 billion Euros, or $1.3 billion, in savings by 2015.

The Shift Plan is the latest in a series of turnaround attempts staged by Alcatel over the past several years, as the company looks to grow its cash pile and compete more effectively against competitors, including Cisco and Ericsson.

In its fourth-quarter earnings release Thursday, Alcatel said its revenue for the three-month period ended Dec. 31 was 3.9 billion Euros, or $5.41 billion, which was down 0.1 percent year-over-year. The company, however, pulled in a profit of $134 million Euros, or $182.5 million, compared to a loss last year of 1.56 billion Euros.

Alcatel next week is holding its global partner and sales conference in Panama, and Parker said that the potential enterprise sale "absolutely" will be addressed at the event.

PUBLISHED FEB. 7, 2014