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Nortel Aims for Ethernet Profits

Michelle Donegan
News Analysis
Michelle Donegan
2/27/2008

Nortel Networks Ltd. said today that it aims to take its Metro Ethernet Networks and Enterprise business units into profitability this year, with an ambitious target of reaching 20 percent market share in metro Ethernet equipment in the next three to four years. (See Nortel Slashes 2,100 Jobs.)

On the day when Nortel reported a fourth quarter loss of $844 million and announced 2,100 job cuts, the vendor pointed to growth areas for 2008. Overall, though, Nortel said it expected low, single-digit revenue growth in 2008.

Nortel has high hopes for Ethernet, though.

"We've positioned the Metro Ethernet business for growth in 2008," said Nortel president and CEO Mike Zafirovski on Nortel's fourth quarter earnings call with analysts. "There's lots of excitement about what's happening with our optical portfolio and carrier Ethernet."

The Metro Ethernet unit, which includes Nortel's optical equipment business, reported fourth quarter revenues of $429 million and operating losses of $11 million.

Zafirovski said carrier Ethernet revenues would grow in the "high teens" this year, a first step towards that lofty goal of 20 percent market share.

Heavy Reading analyst Stan Hubbard says that could be a tall order, although it's difficult to know exactly which products Zafirovski is including in his stated goal. "Industry folks have different definitions of the broad carrier Ethernet market," he says.

Nortel had about a 3 percent market share the carrier Ethernet switch/router (CESR) market for the 12 months ending in the third quarter of 2007, Hubbard says

"For Nortel to reach a 20 percent share in the next three to four years, its CESR revenues would have to grow from $55 million to $65 million in 2007 to north of $700 million. That would be quite a climb, especially given that this market has some 17 plus competitors," Hubbard says.


For its Provider Backbone Transport (PBT, or PBB-TE) technology, the vendor claimed more than 30 customer wins after a big win at BT Group plc (NYSE: BT; London: BTA) in early 2007. (See Nortel Lands PBT Wins, Nortel Pumps Up PBT, PBT Club Grows, BT Counters PBT Claims, CESR Sales Crack $500M, Nortel Pushes More PBT, Nortel Preps New PBT Switch, Nortel Lands More PBT Action, and Nortel on PBT: Today BT, Tomorrow the World!)

On the optical side, Nortel said that it is involved in more than 20 trials of 40 Gbit/s, and pointed to the recent Verizon Enterprise Solutions contract in Europe as a significant win. (See Nortel Takes 40-Gig to Verizon and VZ Goes Ultra Long-Haul.)

— Michelle Donegan, European Editor, Light Reading

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tmc1
tmc1
12/5/2012 | 3:46:44 PM
re: Nortel Aims for Ethernet Profits
I think that Nortel should just aim for profits... any profits at all at this point.
douaibei
douaibei
12/5/2012 | 3:46:43 PM
re: Nortel Aims for Ethernet Profits
Nortel did do something good with BT on the PBT and looks they 8xxx box is the right box to support the PBT solution.

But the core equipment in the PBT doesnot pay too much,it's only 15% of the totla equipment cost. and the core equipment requirement gorws very slowly.

the recent World wide packet acquisiton of ciena can be a catastraphy to nortel, Adva and HUawei. WWP has been very strong in the PBB-TE chipset development and they already developed the product, Ciena already in in 21C's core network, now WWP's solution will be another generator to Ciena, and ciena will be more likely to use wwp than anybody else.

I do not believe the Ethernet business should be they focus enless nortel find way to get hold of 3com.

with 3com, nortel can gain a full product line, ROUTING, SWITCING, UC and security. the 8xxx box can be a good play in the carrier metro maket.

nortel's lan switching technology is not bad compare to cisco, the major problem for nortel is they management system, they command line, the end user do not like them, and the management system software provider do not want to complete the integration of nortel product which causing more problem in the service provider market.

3com's box has already been integrated into major management system thanks to huawei's carrier market push.

the huawei acquision of the 3com looks to be doom should nortel talk to mr b%n to get the deal done?
lamdaswavelength
lamdaswavelength
12/5/2012 | 3:46:43 PM
re: Nortel Aims for Ethernet Profits
In my experience i'd probably go for a "Last in First Out" type strategy myself.
catalyst
catalyst
12/5/2012 | 3:46:43 PM
re: Nortel Aims for Ethernet Profits
any idea which business units will be effected? Their Silicon valley offices might be one of most costly places for them, I guess.

I wonder they make any money out of their Tasman acquisition yet.
NPR
NPR
12/5/2012 | 3:38:42 PM
re: Nortel Aims for Ethernet Profits
I don't think Nortel made much out of their Tasman acquisition. I guess they expect to loose people thru attrition in that group.
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