Is Hewlett-Packard (NYSE:HPQ) trying to become the next Cisco Systems (NASDAQ:CSCO)?
That's what it looks like today, as HP signed a massive alliance with telecom equipment giant Alcatel-Lucent (NYSE:ALU).
The agreement is binding for 10 years and will have more than 1,000 Alcatel-Lucent employees transferring over to HP. Through a series of partnerships, the two companies will offer joint telecommunications and information technology solutions to customers worldwide. The companies each hope to pull in "multibillion euros in net revenues" over the decade-long life of the contract.
So Alcatel-Lucent will take in a lot of HP technologies and experience in its support infrastructure; HP looks like the dominant partner in this marriage. It's kind of like what would happen if IBM (NYSE:IBM) started a telecom division, or you could imagine LM Ericsson (NASDAQ:ERIC) merging with Accenture (NYSE:ACN).
Which of course creates something very much like what Cisco is today: a multifaceted titan with deep expertise in networking technologies that can design, build, and manage a large network for you -- using its own hardware products.
Nevertheless, despite HP's dominance in this relationship, the alliance looks much more important for Alcatel-Lucent. The pan-Atlantic telecom specialist is up to its waist in debt, losing money hand over fist, and fighting for survival. Its Altman Z-Score is looking pretty woeful right now. Nobody wants to go the way of Nortel Networks, so Alcatel is grasping at straws. HP is as juicy a lifesaver as they come, so this project is immensely important to Alcatel-Lucent.
To the huge, successful, and profitable HP, on the other hand, it's not much more than a minor diversion. The company is dipping a pinky toe into the telecom waters just to see whether the temperature's nice. If HP turns out to look like Cisco in 10 years, the transformation would have started today. But if not, it's no big deal. We're talking about a market leader in several other fields, like PC systems, IT services, and mid-range servers for the corporate data center.
Alcatel should send you a thank-you note for the lifeline, HP.
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