Light Reading

NSN to Sell Optical Business

Ray Le Maistre
12/3/2012
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Nokia Networks has agreed to sell its Optical Networks business to Marlin Equity Partners, the private equity firm that recently announced plans to buy what was left of Sycamore Networks Inc. (Nasdaq: SCMR). (See Sycamore Prepares to Shut Down.)

No financial terms were disclosed. Once the deal is concluded, which is expected to happen in early 2013, about 1,900 NSN staff, most of whom are based in China, Germany and Portugal, will transfer to Marlin. The private equity firm is creating a new optical systems company, based in Munich, with NSN's current head of optical, Herbert Merz, as the CEO.

The divestment includes NSN's 100Gbit/s coherent platform, the hiT 7300, and its packet-optical switch, the hiT 7100, plus a number of network management and planning tools. NSN claims to have more than 200 optical transport systems customers. (See XO Deploys First Nationwide 100G Network, XO's Not Done Yet With 100G, NSN Makes Optical Advances and Euronews: NSN Lands 100G Deal.)

The deal does not include NSN's Carrier Ethernet assets, for which a separate divestment deal is being sought. (See Can NSN Offload Its Carrier Ethernet Assets?)

NSN has already sold a number of technology assets, including its microwave backhaul, WiMax, fixed access broadband and IPTV product lines, and is still seeking buyers for others parts of the business. (See Is NSN Close to BSS Sale? and M&A Interest in NSN's BSS Assets Builds.)

Marlin intends to form a new optical equipment company around the new acquisition and buy more assets: It says it "intends to act as a consolidator, building an industry leader in the fragmented optical networking sector."

That sector, which generates sales of around US$15 billion a year currently, has been in decline this year, according to Ovum Ltd. . The current market leaders, according to Infonetics Research Inc. , are Huawei Technologies Co. Ltd. , Ciena Corp. (NYSE: CIEN) and Alcatel-Lucent (NYSE: ALU). (See Ovum: Optical Networking Market Shrinks Again.)

Why this matters
This is a significant move for NSN, which had not identified its optical business as "non-core" when it unveiled its new strategy a year ago. In fact, NSN pinned its future on a broad mobile broadband-focused market strategy, dubbed Liquid Net, that included Liquid Transport as a key element. (See NSN Hangs Its Future on the Liquid Net.)

But NSN is still a company struggling for financial stability and this deal should bring in some cash and, perhaps more importantly, reduce its operating cost base beyond its initial targets, as the 1,900 staff that will come off its payroll are in addition to the 17,000 jobs NSN is shedding as part of its restructuring process.

That cost-cutting process is already having an impact on NSN's profitability, so the vendor's parents, Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI; Frankfurt: SIE), will likely see this asset sale as a positive. (See APAC Boosts NSN's Q3.)

An NSN spokesman tells Light Reading that "transport is important" but that the company could now narrow its technology focus on the radio access network (RAN), mobile core and customer experience management (CEM). Once the divestment is complete, NSN will "work with best-of-breed partners" and integrate third-party technology with its remaining mobile broadband products using its Service Provider Information Technology (SPIT) tools (NetAct and configuration software) in the same way it already does with routers and microwave backhaul systems.

For the optical transport sector, this deal signals something of a shake-up, as Marlin clearly intends to look for further assets to buy to give it greater scale. The private equity firm is also intent on building a broader portfolio for the telecom sector as it recently acquired Openwave Messaging Inc. and Openwave Mobility Inc. (See Openwave Goes Private and Unwired Planet Sells Units to Marlin.)

For more on NSN's transformation



— Ray Le Maistre, International Managing Editor, Light Reading

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digits,
User Rank: Light Beer
12/5/2012 | 5:16:44 PM
re: NSN to Sell Optical Business


Marlin Equity must have a cunning plan up its sleeve.... or maybe it doesn't mind the thin margins that optical attracts these days.


Depending on what sort of cash NSN is getting -- remember, it gave Adtran money to take the fixed broadband business off it shands -- this looks like quite a smatr move, allowing it to be even more focused and reducing its opex further.


By the end of 2013 this should be helping NSN's margins.

Brunonero
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Brunonero,
User Rank: Light Beer
12/5/2012 | 5:16:43 PM
re: NSN to Sell Optical Business


...and NSN's gross margins were already the industry's highest in Q3.  


In order of next best performers in Q3, gross margin and operating margin/profit:


NSN        GM=32.2%  OP=9.2%;


Ericsson  GM=30.4%  OP=6.7%;


Alu         GM=27.9%  OP=-5%  (negative OP);


ZTE        GM=17%     OP=-16% (negative OP).

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 5:16:43 PM
re: NSN to Sell Optical Business


Bruno,


Left Cisco off that list...


seven


 

macster
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macster,
User Rank: Light Bulb
12/5/2012 | 5:16:42 PM
re: NSN to Sell Optical Business


NSN + E/// = 1 company? In 2013?


Taking bets now..... 3:1 odds.

Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:16:41 PM
re: NSN to Sell Optical Business


Tom Nolle of CIMI Corp. says NSN now must acquire cloud-services technology. 


The company has forced its own hand, he says: "The question is whether it realizes that once you leave the transport layer you have nowhere to go except the service layer."


http://blog.cimicorp.com/?p=1026


His broader thesis is that equipment vendors are headed into the same space as the likes of Amazon, Apple and Google.


Thoughts?

Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:16:41 PM
re: NSN to Sell Optical Business


You mean a deal completed in 2013, or a deal simply announced in 2013?  Could be a big difference...

macster
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macster,
User Rank: Light Bulb
12/5/2012 | 5:16:40 PM
re: NSN to Sell Optical Business


I agree with some of Tom's points.


But..... can you really see NSN doing any acquisition? Or is it more likely that they will get acquired?


P.S. Would you like the odds on NSN doing any acquisition in 2013? :)

macster
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macster,
User Rank: Light Bulb
12/5/2012 | 5:16:40 PM
re: NSN to Sell Optical Business


Announced. I think people will want waaayyyyyyyy greater odds for 'completed' :)

macster
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macster,
User Rank: Light Bulb
12/5/2012 | 5:16:39 PM
re: NSN to Sell Optical Business


On a more serious note:


From Tom's blog, operator revenue is not merely 'capped'. I see it decreasing in the coming years. There's only so much you can do to reduce network cost (though other aspects of 'costs' like customer acquisition costs, e.g. subsidies have yet to be really looked at). You need new avenues of top-line growth, as Tom alluded (OTT).


I remain skeptical. In another article, Ray commented and asked if Virgin's WiFi networks would help operators with the mobile data issue. In the UK (and Europe), people tend to be indoors and play with their smartphones, consuming bandwidth indoors (on WiFi). Does this not actually shift revenue away from mobile? I've not heard a compelling plan from any operator, on how they intend to grow revenue.

amitawal
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amitawal,
User Rank: Light Beer
12/5/2012 | 5:16:38 PM
re: NSN to Sell Optical Business


Would be good to see someone workout the math, compare Nortel's sell price and guess NSNs !!

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