Nortel's Philippe Morin

'We knew it was going to be a tough day'

Phil Harvey, Editor-in-Chief

September 18, 2008

5 Min Read
Nortel's Philippe Morin

Nortel shocked the telecom world Wednesday by announcing plans to sell its Metro Ethernet Networks (MEN) division, which houses its carrier Ethernet and optical networking products. (See Nortel to Sell Carrier Ethernet, Optical Biz.) The president of that division, Philippe Morin, spoke with Light Reading about the announcement late on Wednesday afternoon.

In our short conversation we learned that: Nortel's not excluding any buyers from the party; Morin himself is going with the business unit and leaving Nortel; the timing of the transaction is unclear; and Nortel's brass were braced for Wall Street's rough reception. Enjoy:

Light Reading: Why is Nortel selling its Metro Ethernet Networks group?

Philippe Morin: The reason we're doing this is that we believe it's one of the most valued assets… It will help the balance sheet for Nortel but, at the same time, also help us to make some further investments around enterprise, around applications, and other areas around the core strategy direction that Nortel is focusing on.

For the MEN, it's actually a great opportunity to look at how we can start to consolidate that industry by working with future buyers. We're going to be looking at how we grow and how we provide more scale into an industry that, in my mind, needs to be consolidated.

LR: Did this come as a surprise -- that your business would someday no longer be a part of Nortel?

Morin: We've been part of the decision process... [We looked] at where Nortel is going and all these things we're trying to do across the corporation –- looking at enterprise, unified communications, application services, carrier Ethernet, optical and 40-gig. With the state of the economy right now we need to make some focused decisions.

I absolutely support the decision, and I think this is both good for Nortel and MEN because I think… from a business point of view, we will have a chance to grow this business and start a consolidation, and at the same time provide some focus to Nortel around the places they want to invest.

LR: What's been the reaction from Nortel's customers since this was announced?

Morin: I think the critical aspect of our announcement was the statement that we're committed to the same level of service in terms of investment, our plan of record, our SG&A, our sales resources, and our operational and sales support. As we've been talking to customers the message has been this is business as usual, and that resonates well.

When you take them through the logic of taking MEN to the next level by working with potential partners and buyers, and getting to that consolidation so we get bigger scale and more investment, better innovation and so on, I think we're getting a positive reaction.

{column}LR: Were you surprised at how investors reacted to the news?

Morin: No. We knew we had a tough message to get across to the market. When you have to provide a new guidance, you can always expect some volatility and uncertainty. I think from the point of view of the customers and the employees it's been important to reassure them about the MEN decision and make sure we reach out to them.

We knew it was going to be a tough day.

LR: How long is this sale going to take?

Morin: We didn't provide any guidance, but we're going to do this as quickly as we can.

LR: Is there a company you would not sell to?

Morin: No, I think with this announcement today we're opening up to potential bidders, and the criteria are pretty simple: Which one provides the most value to Nortel in terms of cash and impact to the balance sheet; and, to MEN, which one offers the most growth potential?

LR: How do you arrive at a valuation for Nortel's MEN business?

Morin: From a financial point of view, if you look at the total MEN business including the services, we're talking about roughly about a $2 billion business. Last quarter, when you look at our results, it was a profitable business…

That's the real dialogue that's going to take place in terms of what's the value. It's also based on the installed base. We've got over 400,000 network elements out there -- a fairly extensive global installed base that obviously has a lot of value.

LR: When you say it's a $2 billion-a-year business, you're including product sales and the services that go with it?

Morin: That's correct.

LR: How many people comprise the MEN group?

Morin: Nortel's got a very "matrix" organization. In terms of the direct R&D and direct marketing and so on, we've got about 1,000 employees based in Ottawa and Montreal. But then you've got the operations folks, the sales force, the corporate marketing folks -– so that's a number we haven't made public. Obviously, there's a whole organization around the business unit to support it.

LR: Do you think the outcome of this group would be any different if carriers had embraced PBT more quickly?

Morin: It's interesting to look at the parallel comparison that we've got. I mean, in 40-gig, the buying cycle was much shorter. We had 2.5-gig to 10-gig, then 10-gig to 40-gig, and next we've got 100-gig. When you come in with carrier Ethernet and PBT, the sales cycle is much longer because you're actually trying to convince customers to change an architecture.

The good news is we are offering something that's much more simple and cost-effective, but the sales cycle takes more time. So, that's been the parallel that I'm seeing with 40-gig, where the product has been out since April and we've already got already over 20 wins behind us and revenue happening as we speak. That's just the nature of the MEN.

LR: What does it mean for your career? Do you go to the buyer or are you staying at Nortel?

Morin: I'm going with the buyer. I've been in Nortel for 20 years, but all around the optical business, so it's close to my heart to make sure we find the right buyer and the right partner and make this a success.

— Phil Harvey, Editor-in-Chief, Light Reading

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About the Author(s)

Phil Harvey

Editor-in-Chief, Light Reading

Phil Harvey has been a Light Reading writer and editor for more than 18 years combined. He began his second tour as the site's chief editor in April 2020.

His interest in speed and scale means he often covers optical networking and the foundational technologies powering the modern Internet.

Harvey covered networking, Internet infrastructure and dot-com mania in the late 90s for Silicon Valley magazines like UPSIDE and Red Herring before joining Light Reading (for the first time) in late 2000.

After moving to the Republic of Texas, Harvey spent eight years as a contributing tech writer for D CEO magazine, producing columns about tech advances in everything from supercomputing to cellphone recycling.

Harvey is an avid photographer and camera collector – if you accept that compulsive shopping and "collecting" are the same.

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