Nortel forced to sell metro Ethernet networks segment

Nortel Networks has opted to sell its Metro Ethernet business after projecting revenue will again be lower -- $2.3 billion in the current third quarter. This is tough news given the traction that Nortel is seeing with its 40G/100G Adaptive Optical Engine, a platform that enables both 40G and 100G transmission on installed 10G networks."If you have a new car in the driveway, and a kit in the garage, you sell the one that has obvious market value," Iain Grant of the Seaboard Group tells Tech Media Reports.And that car in the driveway has been doing well. Nortel just announced two big deals: a win with Bell Canada, which marked the first Canadian deployment of 40G, and one with Alaska Communications Systems (ACS) to deploy the Nortel 40G solution to connect Alaska with the lower 48 states. The win with Bell Canada is for major Internet corridors, including the Toronto to Chicago and Montreal to New York routes. As well, over the past quarter Nortel has announced wins with Southern Cross in Australia, Rascom in Russia and Virgin Media in the UK.Grant isn't buying Nortel CEO Mike Zafirovski's argument that competitive pressure, reduced spending by key customers, and foreign exchange, are to blame for Nortel's woes - though he might give some credence to Zafirovski's addition of ‘certain product delivery delays' to that list."They are still struggling to get their house in order," says Grant. "We know the global economic slowdown is real - we've seen Dell get hit - but it hasn't shown up yet on the gear side. China and India have been strong."Meanwhile Helen Xenos, Nortel's metro Ethernet marketing manager, is left to sing the praises of her unit as much as a sales pitch to potential buyers as to customers."We're pretty happy with the 40G traction so far," she says. "We have other wins in Canada besides Bell, but they aren't public. A recent research report from Dell'Oro Group said that in the latest quarter we went from 0% to 31% market share in the 40G market place. This is shipping from a revenue perspective - and we expect that to continue to increase."And, of course, metro Ethernet means a whole range of switching devices, data networking technologies, and domain management solutions. There are a lot of Nortel products here, from mobile backhaul solutions, to optical technologies (the Metro 3000, 4000, and 5000 series, and the Multiservice Edge 6110 and 6500) and provider backbone bridges (PBB)."Metro Ethernet is a good solid performer that is growing decent sales," says Grant. "Nortel is looking to the future - to LTE . But this is some years out."This could put Nortel into a terrible squeeze. Its commitment to WiMAX has been called into question, but LTE is a safe bet. The problem is that although the CDMA telcos want to get to LTE fast to level the field with GSM, it will be years before equipment providers like Nortel see significant revenue from LTE. And with units like metro Ethernet sold off, it's difficult to say what will sustain Nortel during this transition period.It's possible that in the case of 40G, Nortel would sell only on the condition that it gets a royalty cut on future business. This would be only fair given the R&D that's gone into the technology, and the fact that there is a path to 100G. Customer loyalty will count for something - this is an area where Nortel has always received high marks.Bell is certainly giving the solution praise. "The majority of our accessed content travels through the corridors that will be supported by Nortel's 40G technology," says Bell spokesperson Jacqueline Michelis. "Two thirds goes through the Chicago and New York corridors. These are major gateways for us to the global Internet. We absolutely see this as a path to 100G."And Nortel's Xenos explains that the technology has long-term, multi-vendor appeal."It will work on competitor's gear, though there is more testing involved. And the deals - I can't provide specifics - but they tend to be from several million to tens of millions of dollars. We think the market is about $300 million this year, and that it will move to $2 billion in 2011."

Nortel forced to sell metro Ethernet networks segment

News | 09/17/2008 6:54 pm EDT

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