The ShoreTel hurricane (the fancy S looks like a hurricane to me) acquired Agito Networks for $11.4 million. Announced on Thursday October 21, 2010, the deal has only recently gained some traction in the trades.

This is the second acquisition between two companies that we've reviewed in mobile UC (the other being Nortel and Avaya) and reflects a movement towards continuing consolidation in the IT sector as companies with cash contemplate their growth plan for the economic recovery and post-recovery periods. As we've written many times, gaining strength through acquisition of market share, revenue generation and business operations talent through the end of a recession is a common and important tactic.

ShoreTel and Agito are different than that however. Products are not substitutes and are for the most part complementary. This deal strengthens ShoreTel's mobile UC story significantly and gives them an answer for the continuing decline expected in the phone operations. ShoreTel's proprietary desktop phone business faces significant pressure as fewer and fewer customers are willing to shell out $500 for every user as they might have been five years ago. IT managers know that users are increasingly mobile and won't appreciate the fixed location device much let alone use it.

Channels are slightly different so there will be opportunities to Agito-ize ShoreTel channel partners particularly as the Agito product is tuned for unique ShoreTel features or advantages. Agito channels are already resellers of IP PBXes (Cisco and others) and probably won't look to replace that line having probably invested far more money and effort to develop their skills in reselling the IP PBX than in reselling the mobile router. This may be some wishful thinking on the part of ShoreTel, but aggressive recruiting by ShoreTel of Agito channels is expected. Furthermore, this could have the reverse effect since some Agito channels won't believe that the combined company will service their brand of IP PBX as strongly as they would as an independent company, which may create an opening for leaders among Agito's still-independent competitors.

Customers, however are going to be a challenge. ShoreTel prides itself on serving the MidMarket which for the most part, according to our research have not been particularly strong at adopting mobile UC. From what I can see in the announcement materials, both Agito and ShoreTel are going the industry-solution-specific route when it comes to mobile UC. Focusing on the specific campus-style industries like healthcare and education will do the combined company a lot of good.

Here's the Brockmann Deal Report Card:

Strategic Fit - 4/5.

Mobile UC should be on every UC vendor's shopping list. Not only is it a required feature set for new UC installations, but it is the only way to offset the decline in IP phones that businesses will be purchasing going forward. This market evolution is a threat of course to Polycom who supplies IP phones to lots of manufacturers (not ShoreTel), but especially so to any UC vendor that sells their own IP phones.

UC-vendor independence was an advantage for Agito who marketed their solutions strongly to Cisco UC channels. It may be that Agito will going forward continue to operate semi-autonomously to maintain the illusion of independence. And it may be that Cisco will terminate Agito's membership in the Cisco Technology Development Program, which would significantly harm the prospects for addressing the Cisco market for Agito. Regardless, the development of a more tightly integrated ShoreTel mobile UC solution will be necessary to offset any opportunities lost to the loss of Agito independence.

Timing - 5/5.

ShoreTel is still losing money. We estimate that the $11.4 million price tag is about dollar for dollar for the VC investors. It may be in some combination of stock and cash, which suggests that the VCs hope to experience a positive return on the capital appreciation of the combined company. Otherwise, it represents a 10% cut in ShoreTel cash holdings - a big cash drain with limited revenues (estimated $5 million/year) to show for it. No doubt the upcoming ShoreTel investor's conference call will reveal all.

Customer Demand - 5/5.

ShoreTel customers want mobile UC as part of their ShoreTel system solution. It is the future of communications.

Potential - 3/5.

As unique and exciting as the feature set of mobile UC is, mobile UC will not significantly add to ShoreTel revenues. It will offset losses as a result in the decline in IP phone sales. It will help ShoreTel will deals that they would otherwise lose to Avaya or NEC. It differentiates them from the Cisco/RIM MVS solution. Note that Avaya considers mobile UC an entitlement (ie, free) which may end up being ShoreTel's meet'n'win strategy against Avaya.

User Rating: / 2
PoorBest 

Intel, where the strategists are sensing a market inflection based on the economy lifecycle stage - fragile recovery - has agreed to acquire the mobile phone assets of Infineon (the silicon division of Siemens that IPO'd in 1999) for $1.4 billion in cash. This deal gives Intel instant presence and credibility in a high growth silicon market - smartphones - where Infineon current boasts being third in market share. Infineon remains #1 in automotive electronics.

This deal scores much better than the McAfee-Intel deal discussed in this post because it closely aligns with Intel core competencies of silicon production, miniaturization engineering and chip design.

Here's the Brockmann Deal Report Card:

Strategic Fit: 4/5

This deal is a nice stretch for Intel, bringing them back to what had been a troublesome market where the pace of innovation was limited by the tight relationships between the device manufacturers, OS manufacturers and their mobile operators. Before iPhone, if mobile operators didn't like a functionality, they told the OS and device manufacturers and the functionality was not readily available. Nowadays, it's pretty much anything goes. Mobile phones can do VoIP (a taboo feature in 2006) now without the carrier's participation. Developers can rollout software without cutting the mobile operator in for a share of the revenues.

Of course mobile phone silicon lifecycles and PC silicon lifecycles are very different. One is measured in weeks, the other in months. Hopefully, the division being acquired has critical mass of engineering talent so it can continue to innovate at the pace its customers expect, which is somewhat faster than the cultural pace of Intel.

Timing: 5/5

Infineon was hoping for $2 billion according to the Wall Street Journal and had received interest from Samsung and other specialists in the mobile phone space. High tech businesses are still under-valued, even heading into a recovery.

Customer Demand: 3/5

I don't expect there is a lot of synergy between the Infineon division and Intel-proper, yet. I do expect that will change as the former Infineon wireless sales teams learn about the possibilities of new wireless products or technologies from Intel that complement the existing relationships with mobile device manufacturers.

Potential: 4/5

It is expected that this deal will open up new mobile opportunities for the combined entity that were previously unavailable to either organizations. The Infineon unit did not have the processor expertise, while Intel did not have the mobile spectrum technology readily available. Now, these will be leveraged and ultimately integrated, hopefully sooner than later and hopefully at a profitability level that will satisfy Intel shareholders.

Intel announced yesterday, it's agreement for a $7.7 billion cash acquisition of the security software firm McAfee. I've taken a few liberties on scoring this deal, positioning the 60% premium over stock price as a combination - McIntel - (pronunciation tip - think McIntosh...).

Overall, this is a bad deal for Intel shareholders. It signals a move for the company to become a tech diversification company, of the same class as Cisco. Sure, IBM and Oracle might be considered by some to be in the same category, but these large technology companies still address their target customers. They haven't like Cisco strayed from enterprise buyers to consumers. Intel, which sells big to computer OEMs (Apple, Dell and HP are three big customers/channels) will now be selling to and through VAR channels that sell security software products and services to enterprise.

Sadly, Intel has attempted this class of 'ultra'-diversification before. They acquired VPN company Shiva, DSP-based VoIP gateway company Dialogics. In these two cases, it didn't end handsomely for Intel at all. Shiva just shriveled up, while Dialogics eventually became a standalone company; both generating loss in value to shareholders.

I don't think this will end pretty for Intel shareholders because there is little-to-none synergy between the Intel business and the McAfee business. McAfee software won't care what chip it runs on and Intel chips won't care what security software it runs.

Here's the Brockmann Deal Score Card:

Strategic Fit: 1/5

I don't see any synergy here or economies of scale to be achieved. Both are somewhat mature markets and are quite independent. There may be a stronger 'strategic fit' for Intel to buy GM's upcoming IPO so they could make sure Intel chips are built into GM cars. This is about Intel becoming a holding company with several operating assets in several markets.

Timing: 5/5

Intel is flush with cash (as are most of the F100) and needs to acquire other companies with the goal of positioning itself for growth in time for the end of the recession. With this goal, it has to make sizable deals so any growth can move the needle for the whole ship.

Customer Demand: 0/5

McAfee and Intel are both mature players in their respective mature markets. Granted, Intel dominates processors while McAfee is merely a contender in the fractious security software market. There are no markets where Intel can help McAfee sell more, or where McAfee can help Intel sell more. There's no technology plan (at least that I've even remotely heard of) that might imbed McAfee technology into Intel chips.

Channels to market are different for these two companies and the products of one aren't particularly important to the buyers in the other channel. Intel sells to PC manufacturers while McAfee sells to enterprise security staff and to consumers.

Potential: 0/5

There will not be $1 of value created as a result of this deal to create new products or new channels or new markets.

Overall, I have to score this deal low - 30%. It lacks the key value factors that are important in successful deals. It lacks any real strategic significance or positive impacts on customer demand or even potential of the two companies. Not impressed. Not impressed at all.