UK telecoms equipment vendor Marconi has admitted it is in takeover talks but declined to reveal with whom, leaving the market to assume that the suitor is China’s Huawei Technologies. While such a tie-up would come as little surprise given the existing partnership between Marconi and Huawei, the Chinese player should be aware of some of the pitfalls that could accompany it.
Huawei Technologies is rumored to be preparing a bid for UK telco Marconi.
Huawei and Marconi have been in a partnership since May, with London-based Marconi selling Huawei’s L2 and L3 equipment to carriers while Huawei sells Marconi’s fixed-wireless equipment in China for cellular backhaul.
In April, UK incumbent BT Group put Huawei’s name on the list of preferred suppliers for its $20 billion 21st Century Network (21CN), becoming the highest-profile name among a number of European customers. Marconi, meanwhile, was notable by its absence from the 21CN list, a situation which was widely seen as putting a nail in the equipment vendor’s coffin, since BT made up 25% of its annual revenue.
Huawei needs to increase its presence in Europe where it has been considerably more successful at winning carrier business than in North America.
Marconi has a market capitalization of GBP560 million and there is talk of Huawei offering GBP600 million for the company. The question is, what would Huawei be getting for the money? Marconi is strong in optical networking, which was once a hot area of technology but is now at something of a nadir. It also has softswitch technology for sale to carriers that want to handle VoIP traffic in the core of their networks, without converting it to TDM at the edge. This is a small part of Marconi’s overall revenue, but is clearly something the vendor sees as increasingly important going forward
Even so, Huawei could spend a lot less to acquire softswitch technology. There are half a dozen specialized ISVs in Europe and the US it could pick up for a fraction of what it would need to spend to get Marconi. If the deal does go through, it will be buying the erstwhile UK national champion for its customer relationships and technical expertise. That it will also inherit Marconi’s debts to members of its pension fund is a potential sticking point, unless the acquisition price is lowered or it does not need to honor all the commitments of the company.