Watch out Nortel!

I was reviewing Nortel Enterprise group's performance in Q1, 2007. The vendor registered a sequential growth of 18% on system deployments (47% y-o-y) in EMEA. Nortel enjoys continued success in emerging markets especially in Russia and the Middle East. Its growth in Q1, 2007 has been concentrated in the sub 200 segment. Its BCM series and KTS portfolio have been the most successful products.

One of the key challenges for Nortel is to grow its MLE installed base. While Meridian M1 continues to be successful, CS1000 series struggles to grow in comparison. Overall, Nortel's growth in this segment has been modest.

Overall, Nortel is in a great shape. Its Innovative Communication Alliance (ICA) with Microsoft is on track. The alliance has already launched a few solutions and announced several others to be launched later this year. Microsoft and Nortel are conducting joint roadshows in Dubai, Manchester, Johanesburg and Copanhagen in the next three weeks. Already, both companies have started working on listing tier 1 accounts to be targeted.

Recently Nortel enhanced their ethernet switching portfolio ERS 2500/4500 to support multimedia communication. This will help ICA provide unified communication over converged infrastructure in the SME - a very large and untapped market segment. In addition to premise based solutions, ICA has come up with a roadmap of hosted solutions involving CS2100, Microsoft HMS and Active Directory.

In addition to ICA, Nortel stands to leverage its JV with LG. At WinHEC earlier this week, Microsoft announced that LG-Nortel phones could successfully work with OCS 2007. Currently, LG-Nortel offers an extended portfolio of IP phones and IP based KTS systems (iPECS and ipLDK series).

My outlook for the vendor is positive. I expect Nortel to grow at 5-10% sequentially this year.