On 23 December 2009, IP gateway manufacturer Genband announced it planned to buy "substantially all" of Nortel's Carrier VoIP and Application Solutions (CVAS) for $282 million plus $100 million in other adjustments, with the deal partly financed by its own shareholders. As part of the deal, Genband has committed to hire a significant majority of CVAS employees.

This bid is part of a competitive auction and other bidders may emerge; however, if Genband's bid succeeds, it will:

• Gain important softswitch, unified communications (UC) and IP Multimedia Subsystem (IMS) technology. This will complement its focus on VoIP and circuit-switched voice and fill a gap created in its portfolio by the partial divestment of its softswitch products. The latest Gartner softswitch Magic Quadrant rates Nortel as a "Visionary." Our main concerns center on its financial viability.
• Emerge as a clear No. 1 in the softswitch and media gateway market. The deal would put Genband ahead of Sonus, Ericsson, Nokia Siemens Networks, Huawei and Alcatel-Lucent. Nortel has important softswitch deployments with Tier 1 carriers, like Verizon and AT&T. Genband will work to convert these into IMS and UC deals to deepen its presence in North America.
• Benefit from Nortel’s significant North American revenue streams. Nortel's CVAS division produced FY08 revenue of about $800 million. It showed strong growth of about 14% from 3Q08 to 3Q09.

Genband faces two main risks. It may:

• Be outbid. Nortel's CVAS revenue is attractive. But Genband's offer is in line with successful bids for other Nortel divisions, based on percentage of annual product and service revenue.
• Have difficulty integrating a much larger competitor. Genband's 2008 revenue stood at $144 million, less than one-fifth of Nortel's CVAS revenue, and it has less than one-third of the employees too. Genband will have to rationalize common portfolios while maintaining Nortel's CVAS sales momentum in 2010.

• Greenfield accounts requiring IMS or UC: Wait for Genband to announce a road map for Rich Communications Suite (RCS) support.
• Nortel CVAS customers: Monitor the progress of the deal. Reduce depreciation cycles for Nortel products to account for the possibility of the winner of the auction discontinuing them.

• "Magic Quadrant for Softswitch Architecture"— We rated Nortel as a "visionary" based on its voice focus and viable products. By Deborah Kish and others
• "Emerging Technology Analysis: IMS RCS, Carrier Network Infrastructure"— Interoperability initiatives like IMS RCS are becoming a priority for service provider customers. By Deborah Kish and others

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