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Nokia poised for enterprise acquisitions

And possible Palm tie-up

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Nokia is poised to make acquisitions this year to bolster its new Enterprise division and its ambitious bid to bite into the markets of both Microsoft and Cisco.

CEO Jorma Ollila told analysts last week that “when we are looking at building our enterprise sector, we will be looking at smaller acquisitions”, although he claimed no deals were currently on the table.

The most likely areas where Nokia might want to boost its corporate platform rapidly through acquisition are broadband networks – WLan and beyond – and back end software, as well as platforms for convergence of cellular and IP, and PDA functionality for the smartphones.

Convergence

To date all Nokia’s major offerings are focused on cellular networks, even though it has fervently embraced the converged, multi-standard network concept as the future for its operator-focused business.

Handsets supporting Wi-Fi and WiMAX alongside 3G, WiMAX base stations for developing markets, adaptable radios that use the most appropriate available connection – all these are firmly on the Nokia agenda. They are sure to be applied to the enterprise market too, but while the core technologies are there in the Finnish giant’s portfolio, ready to be adapted for new sectors, there will be various hardware and software gaps that need to be filled in.

Perhaps the most valuable technology Nokia could snap up would be a multi-network enterprise platform that allows companies easily to mix and match wireless protocols for best performance and cost-effectiveness. The best known of these is RadioFrame, although that company is tightly tied in with Nextel and Ericsson, but a similar product would be a major boost to Nokia, setting it up against Cisco – which it has identified as the key competitor for the Enterprise unit – and furthering its ambition of becoming the vital conduit between the CIO and the mobile operator.

Important here could be the intellectual property of wireless router company Tahoe Networks, which Nokia acquired last year. Although mainly focused on carrier networks, its technology concerns what Nokia calls the Intelligent Edge, where cellular systems meet IP, and as such could be applied to corporate networks.

The critical technology in the long awaited convergence of cellular and IP networks will be voice over IP, and this is what Nokia will have to master in order to succeed in its enterprise ambitions. It is far ahead of rivals in the vision, with its work on WiMAX handsets a good example, and if it moves swiftly it could put itself in pole position to challenge Cisco, NEC, Siemens and the others as VoIP goes wireless. One start-up in the Nokia investment portfolio is worth keeping an eye on for this reason – Qovia, maker of enterprise voice over IP management systems.

NEC has stolen a march by allying closely with Airespace, which makes voice-optimized Wi-Fi gear. Another switch start-up heavily focused on voice is Meru Networks, which claims to have outdone the upcoming 802.11e quality of service standard with its own access points.

Enterprise Wi-Fi

Certainly, there could be rich pickings among the host of Wi-Fi switchmakers that face inevitable shakeout this year, and this is where most speculation about Nokia’s possible acquisition targets has centered. So far, Nokia’s broadband wireless initiatives have been targeted at its traditional carrier base – the Operator Wireless Lan hotspot kit and various smart antenna pilots, plus its prototype WiMAX products, are all operator focused, while to date the company has largely ignored enterprise networking. Like rival Motorola, which is also just starting to get serious about corporate Wi-FI and WiMAX , Nokia is likely now to adapt its technologies to the enterprise.

“It is vital to encourage the mobile corporate sector to use broadband data and applications, as this is the same segment that will use 3G data services,” said the company in a recent statement.

This could well involve acquisitions or partnerships in the switch community. Companies such as Vivato and Trapeze have innovative technology but increasing competitive pressure and financial difficulties, and could be an easy target for cash-rich Nokia. So could start-ups focused on IP routing, which is likely to prove a better match for Cisco’s WLAN strategy in the larger enterprise – companies such as Chantry Networks spring to mind.

Nokia has already demonstrated interest in smart antenna technology for extending the reach of Wi-Fi, which can make enterprise WLans more powerful and cost-effective, and a buy in this area could bolster carrier and corporate product lines. Nokia’s own investment unit has a stake in Airgo, a pioneer of voguish MIMO antenna technology.

Nokia’s investments

Of course, it is always worth looking at companies’ own VC investments when speculating on promising acquisition or partner targets, and Nokia has a history of adopting the technology of the companies in which it invests. Nokia Venture Partners is the world’s largest mobile- specific investor, with $650m under management, and it also runs Innovent, an incubator fund.

Interesting portfolio members from an enterprise point of view include @Hand, which makes field service software, Qovia for enterprise voice over IP, TailWind, which makes mobile workforce software and R-Objects, for virtual workgroups based on mobile clients. Innovent was an investor in Eizel, the first acquisition that Nokia made specifically for its enterprise business. Nokia spent $21m last spring on Eizel, one of the most innovative of the mobile software start-ups, making the smaller company’s Amplifi mobile email server the centerpiece of its planned corporate middleware and back end product range.

Palm partnership?

As well as fleshing out WLAN systems and back end software, it is probable that Nokia will have to accelerate the introduction of PDA capabilities to its smartphones in order to make them the client of choice rather than Palm and PocketPC devices – especially as these start to acquire better telephony.

The PDA makers lack the history of carrier relationship building to succeed in the consumer phone sector, but in the enterprise they are well established. With speculation mounting that PalmOne will move to an multiple operating system strategy, probably including Symbian OS/Nokia Series 60, it is hardly beyond the bounds of possibility that Nokia could acquire the PDA market leader. It would gain Palm’s brand recognition among business users, its PDA functions and its critical Java developments with IBM, all of which could be incorporated into the Symbian platform. The same argument could apply to RIM, which has an even more extreme version of Palm’s dichotomy – strong brand, contracting market.

PalmOne’s European chief, Vesey Crichton, told a Swedish publication last week that PalmOS was “not viewed internally as a religion”, sending a clear signal that the PDA maker could adopt other operating systems now that it has spun off its software arm, PalmSource. The most likely OS would be Symbian. Crichton is a huge admirer of that system and in particular of the Nokia interface and Series 60 developers’ platform.

The combination of Palm and Nokia technologies could have huge benefits for both companies. Palm would not be saddled forever with an operating system that, despite its popularity, will decline as newer systems catch developers’ imaginations and as the standalone PDA for which it was designed becomes insignificant. The handheld maker’s survival strategy rests partly on moving to smartphones – particularly after the acquisition of Handspring – and Symbian OS is the strongest contender on the smartphone platform.

Symbian, and specifically Nokia, could also benefit from working with Palm. Nokia needs to strengthen the PDA-style qualities in its phones before they will be as appealing in the enterprise as the handhelds that came from a data heritage, and it especially needs to improve its data sychronization capabilities – a key expertise at Palm.

Enterprise Solutions may be only 5 per cent of Nokia’s revenues now, but it is the unit targeted for the greatest expansion in 2004. The company believes, with some justification, that it has a small window in which to present itself as the only vendor with “end to end thinking” rather than just attractive applications or devices. To achieve this within such a short timescale – less than two years to gain significant market presence and prove the concept – acquisition or licensing deals will be essential to supplement R&D that, while relevant to the enterprise, remains focused on the carriers as the first priority.
© Copyright 2004 Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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