Nortel: To Do 4G or Not To Do 4G
>> Nortel 4G Plans Up in the Air
Ray Le Maistre
Light Reading
September 17, 2008
unstrung.com
The future of Nortel Networks Ltd. (NYSE/Toronto: NT) as a major player in the telecom equipment market was called into doubt today as the vendor's CEO Mike Zafirovski announced that he is looking to offload the company's 4G mobile developments as well as sell off the company's Metro Ethernet Networks division (which includes its carrier Ethernet and long-haul optical equipment).
In Nortel's early morning announcement, the company noted it is seeking to "mitigate the risks associated with the Company's 4th generation carrier wireless investments." Those 4G investments are focused on the development of LTE, now that Nortel is leaning on a recently brokered relationship with Alvarion Ltd. (Nasdaq: ALVR) for WiMax.
But now it seems Nortel isn't so keen on developing LTE either, despite repeated claims that it was well positioned to be a major player in that market.
When asked during today's analyst conference call about what actions Nortel might take regarding its 4G developments, CEO Mike Zafirovski said the company is looking for "opportunities to de-risk" its investment. "Future consolidation is necessary in wireless. We're exploring options for 4G that will be best" for Nortel, its customers, and the industry, said the CEO, unhelpfully.
What might those options be? Zafirovski said that "what we did with UMTS and Wimax" are examples of what might happen. Nortel's WiMax strategy is now tied up in the Alvarion relationship, while it sold its 3G UMTS infrastructure business to Alcatel in late 2006.
Analysts, still parsing Nortel's words, see some value in Nortel getting help from partners. “Ever since Nortel exited the UMTS market it’s been next to impossible to see how investing in their own LTE base station would result in anything but huge losses," says Patrick Donegan, Heavy Reading's senior wireless analyst. "Going down the same OEM path as they have with WiMax would at least ensure that those huge losses won’t be suffered. Whether they can go beyond that and carve out a position in LTE which is actually profitable with an OEM partner is unclear but certainly plausible.”
And while analysts pondered exactly what Nortel might do with its LTE developments, Zafirovski launched into a sales pitch.
"LTE is a terrific technology that will provide great value to the marketplace," he stated. "Carriers tell us we have a terrific solution and our trials are going well."
[Ed. note: "And we'll throw in a white 3G iPhone and a $25 Starbucks voucher for anyone that wants to buy our IPR," he probably should have added, but didn't.]
But, just like with carrier Ethernet and optical, the market is too tough for Zafirovski to believe Nortel can be a leading and profitable player. "With eight, nine, ten players competing, industry dynamics require various forms of cooperation," he added.
"We have to be realistic," he added in response to questions about Nortel's decision to plan divestments. "Our view is that it would be advantageous to focus on a few areas where we can in fact win." It seems the enterprise technology and applications market, and the carrier VOIP and applications market, is where Nortel believes it can be a leader.
In addition, any sales would "strengthen our balance sheet," noted the CEO, adding that "our strong preference is for cash" in any deals Nortel can strike.
So does Nortel have anyone lined up to buy any of its carrier assets? Zafirovski said only that he can't provide any details on any discussions.
And there's no good news on the company's existing CDMA business either. Zafirovski said there has been "no improvement" in the CDMA sector since it hit the company's second quarter numbers, and, in fact, there has been "additional pressure." (See CDMA, Charges Knock Nortel, below.)
>> CDMA, Charges Knock Nortel
Ray Le Maistre
Light Reading
August 01, 2008
Nortel Networks Ltd. (NYSE/Toronto: NT) has become the latest vendor to feel the CDMA pinch, as, like Alcatel-Lucent (NYSE: ALU), slower sales in North America in the second quarter had a negative impact on the vendor's top and bottom lines. (See AlcaLu's Q2 Dragged Down by CDMA.)
Nortel reported revenues of $2.6 billion, up slightly (2 percent) from a year ago, despite a slight fall in sales in its Carrier Networks division, its largest business unit by sales. Gross margin was 43.1 percent, up from 41.1 percent last year, while operating profits were $45 million, compared with an operating loss of $28 million a year earlier.
Nortel reported a net loss, however, of $113 million, or $0.23 per share, including a $67 million restructuring charge.
Nortel showed strengthening business in Asia/Pacific, where revenues were $584 million, up nearly 74 percent compared with last year. Revenues in the United States, EMEA (Europe, Middle East, and Africa), and Latin America all decreased year-on-year.
Across all its business lines, only CDMA and voice switching platforms fared worse compared with a year ago. CDMA sales dropped to $446 million from $494 million, while sales of circuit and packet voice systems fell to $144 million from $162 million last year.
Both of those business lines are part of the Carrier Networks division, which reported revenues of $1.04 billion, down 2 percent compared with the second quarter of 2007. Revenues from GSM and UMTS equipment, though, were up more than 11 percent to $448 million, thanks largely to increasing sales from the company's LG-Nortel Co. Ltd. joint venture.
Nortel's other three divisions -- Enterprise, Services, and Metro Ethernet Networks (including optical equipment and carrier Ethernet switches) -- all reported better year-on-year sales, up 3 percent, 9 percent, and 4 percent respectively.
The vendor, though, says it's still on course to hit its full-year targets of low single-digit growth in revenues and gross margins of around 43 percent, despite the "general macro-economic weakness, continuing competitive pressures and potential of further reduced capex spending by key North American CDMA customers."
That's because it expects to see increasing sales in its Enterprise and Metro Ethernet Networks divisions during the second half of the year and is expecting to complete some wireless deals in the fourth quarter, "approximately $350 million of previously deferred revenue." (See Nortel Lands Deloitte, NT, MSFT Win in Germany, Nortel Touts Carrier Ethernet, Nortel Wins PBB Deal With Verizon, Nortel: There's More to PBT Than BT, and Virgin Trials 40-Gig.) ###
- Eric - |
