HP deal with Alcatel-Lucent short on details, long on potential 18 June, 2009 By Steve Wexler

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As part of the partnership, HP will transform and manage a large part of Alcatel-Lucent's IT infrastructure. According to the Wall Street Journal, Alcatel will transfer 1,000 jobs to HP as part of the deal and this will result in cost savings of 750 million euros by year end.

"We expect customers will be able to create new business opportunities and greater efficiencies from this alliance," said Mark Hurd, HP chairman and CEO, in a release. "By combining our deep expertise in IT and communications, HP and Alcatel-Lucent will help customers transform their technology needs into a competitive edge."

In addition to looking forward to best-in-class solutions for its IT needs, Alcatel-Lucent CEO Ben Verwaayen said the alliance represents a major transformational deal. "IT and telecom are coming together in an unprecedented way and I am delighted to see how we can speed up innovation in our industry."

In a deal that never went very far, HP teamed with Alcatel in late 2003 to supply telecom service providers with SMB solutions. And pre-Alcatel Lucent had a wireless partnership with Compaq, prior to the HP acquisition.

The announcement is short on details and HP has not yet responded to a request for more information, but a number of analysts offered their thoughts on what this might mean.

This is a big announcement for HP, Alcatel-Lucent and Cisco, said Denise Sangster, president and CEO, Global Touch Inc. "HP started laying the groundwork to change its competitive positioning with Cisco over a year ago. HP management began telling partners in December that HP will cooperate with Cisco in the enterprise and compete with Cisco in other customer segments. HP does not have the product portfolio to really compete with Cisco head on, leaving the HP threat to Cisco more of perception. Now enter the Alcatel-Lucent deal. Both Lucent and Alcatel were 'once-upon-a-time' competitive with Cisco, primarily in the first half of this decade. Neither has been a serious threat to Cisco for a number of years."

She added that Alcatel-Lucent has some great technology. "With the HP powerhouse sales engine and its broad partner network that is being incentivized to sell the 'HP family', it might create an interesting competitor, but that won't be an immediate issue for Cisco."

IDC's Janet Waxman, vice president, channels and alliances, hardware infrastructure, agreed there will be an impact, although what remains to be seen. "I don't know that I can comment on what this will do to the HP/Cisco relations but think that it is fair to say that John Chambers and Mark Hurd have both stated their positions."

Earlier this month Cisco CEO and chairman John Chambers clarified its HP relationship and even seemed to zing the Alcatel-Lucent agreement. "HP is a competitor, and we're going to have fun competing. We've never had a $110 billion competitor before. The last time we had this type of opportunity in front of us was with Nortel, Lucent [and] Alcatel: great companies, and we held our own pretty effectively."

Sangster said she would have been more concerned for Cisco if HP announced a Juniper acquisition. "Our industry is 'littered' with strategic partnerships gone south... Generally strategic partnerships don't work out unless one partner is acquired." So, maybe HP is 'dating' Alcatel-Lucent to see if it wants to be married to them. "But even then, I think it is going to be tough to get this relationship to work and I don't see it as a short-term issue for Cisco."

Somewhat tongue in cheek, Diane Krakora, president and CEO, Amazon Consulting LLC, also likened the old and new relationships to marriage. She said HP and Cisco had had a deep relationship that has been getting stale recently, and that the Alcatel-Lucent arrangement is more of a prenuptial agreement, the very early stages of a possible partnership.

"This is not a kneejerk response to the deteriorating marriage between HP and Cisco. HP had a very deep relationship with Cisco, and with the release of California and Cisco's emerging competition in the data center, HP needed to find a new partner in the telecom space. As the Alcatel-Lucent deal is nothing more than an agreement to agree, it remains to be seen how this will play out."

This is just business as usual, stated IDC's Paul Edwards, director, SMB and channel strategies, and nothing ominous should be read into it. "I consider this announcement just one of many to come out around the convergence of IT and telecom -- in fact, today IBM and Rogers announced a deal. So in my mind the large IT service providers are looking at the massive opportunity and solidifying alliances to take advantage of it. I think Cisco would see this in the same way -- it's just another example of co-opetition in this market."

Analyst Michelle Warren, MW Research & Consulting, agreed. HP and Alcatel have had a relationship for a long time and this announcement further strengthens their working relationship. "In many ways, this is an excellent move. Both firms have a global presence, and share a rich history of working together. Customers will benefit from this strengthened relationship."

However, she added that there is definitely an element of competition with HP too. Rather than pointing at Cisco's server ambitions in the data center, she pointed to HP's increased focus on its networking division, ProCurve, 18-24 months ago. "HP and Cisco still have some contracts in place, but I suspect that we will see an unraveling of that relationship over the next bit of time. Cisco definitely seems to be aiming for the jugular. HP's retaliation won't go over smoothly."