Ethernet equipment

Nortel M&A Rumor Update

8:30 AM -- Looking for a laugh in these somewhat depressing times? Then check out the latest speculation about the prospective sale by Nortel Networks Ltd. of its Metro Ethernet Networks (MEN) division. (See Nortel to Sell Carrier Ethernet, Optical Biz.)

Let's just quickly remind ourselves about MEN, which supplies optical and carrier Ethernet equipment to carriers and cable operators. It generated more than $1 billion in revenues during the first nine months of 2008, during which it recorded a small ($2.5 million) operating loss, and is regarded by carriers as one of the leading players globally in 40G/100G developments. (See Nortel Shows Single-Slice 100GE, Verizon Adds Nortel to Its 100G Club, and Comcast, Nortel Put 100G to the Test .)

Cutting-edge optical and carrier Ethernet are two of the hottest telecom equipment sectors, making the MEN division attractive, at least from a portfolio perspective.

As a result, large rivals such as Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERIC), and Huawei Technologies Co. Ltd. have been linked to a potential acquisition, which could net anything from $500 million upwards for Nortel, which needs the cash. (See Nortel: M&A Update, Now What's Nortel Worth?, Is Huawei Moving Closer to Nortel?, Huawei Seen as Likely Nortel Suitor, Why Huawei Should Buy Nortel's MEN , and Nortel Plunges on New Forecast.)

Check online today, though, and you'll find a number of news outlets suggesting that Radware Ltd. (Nasdaq: RDWR), an applications delivery and security system vendor that generates about $90 million a year in revenues from its enterprise and carrier customers, is about to buy "all or part" of Nortel's MEN business for between $30 million and $50 million.

The original source for the speculation is this article at Globes, but you can also read about it in this story at TheStreet.com or this article at ITexaminer.com.

The funny part, of course, is that Nortel would sell the whole MEN division for $50 million. Daft things happen in telecom, but not that daft.

Selling a small part of MEN for such a sum, though, is possible. But which part?

While Nortel and Radware aren't commenting on the speculation, let's bring the "no smoke without fire" idiom into play and explore the suggestion further. The thing is, Radware's focus is quite specific: Its technology helps enterprises manage their business-critical applications, which includes optimizing data center traffic flows and security.

It's possible Radware might be interested in boosting its existing business by acquiring Nortel's Application Switches, Accelerators, and WAN optimization products, but they're part of Nortel's Enterprise division, which is at the heart of Nortel's new business strategy.

Nortel CEO Mike Zafirovski has said in the past that he would sell any assets that weren't market leaders, so it's possible that certain parts of the Enterprise portfolio could be offloaded.

But Radware is particularly bullish about the potential for new application delivery controller (ADC) capabilities that will help data center operators virtualize their network and services layers, including metro Ethernet. Check out this video interview with David Aviv, Radware's VP of advanced services.

It's possible, then, that Radware is interested in a specific part of Nortel's Ethernet portfolio that would help it pitch a more rounded offering to carriers, especially those operators that want to offer managed and hosted data center services to their enterprise customers.

It's also possible that Radware isn't interested in any of Nortel's assets. But if Nortel starts selling its MEN division piece by piece, that could make for a very interesting year ahead in the optical and Ethernet sector.

— Ray Le Maistre, International News Editor, Light Reading

Be the first to post a comment regarding this story.
Sign In