Nortel Bolsters HDX Case

Nortel Networks Corp. (NYSE/Toronto: NT) last night announced a new contract with carrier China Netcom Corp. Ltd., which features the first installation in China of the OPTera Connect HDX optical switch (see China Netcom Picks Nortel).

Terms of Nortel's latest deal with the Chinese carrier weren't disclosed; but by the middle of this year, the company claims, two optical rings in a 5,000km network encompassing more than 10 cities in eastern and southeastern China will be operational. The carrier also will use Nortel's OPTera Long Haul 1600 and OPTera Connect DX optical switch for optical broadband services, the vendor says. Nortel has done business with China Netcom for several years.

The news marks the third HDX Connect installation Nortel's gone public about, and following on the heels of the company's upbeat earnings announcement last week (see Nortel Earnings Are Upbeat), it invites two trains of thought: First, that Nortel's turned a corner with the late-blooming HDX; and second, that Nortel's bolstering revenues by gaining coveted ground against other vendors in China.

Surprisingly, Nortel's not really encouraging this kind of thinking. "We've always seen interest in the HDX," says Brian McFadden, president of Nortel Optical Networks. "We're seeing that interest continue... There's significant demand in Asia, growth is there... [Overall] I think the market's stabilized, but there's no significant upturn. We're just trying to get our fair share of what's there now... I don't think folk should read more into it than that."

McFadden wouldn't comment on rumors that the HDX is in late stages of testing at Bell Canada (NYSE/Toronto: BCE), where Nortel employees have stated the HDX was in early trials. "We're engaged in several trials around the world," he says, "with people looking hard at optical networks and bandwidth management."

The sale does breathe some new life into the HDX effort. For over two years, Nortel's made no secret of its high hopes that the HDX would help it win business (see Nortel's Got a Plan and On the Job – With Mumford & Pals ). The product's official unveiling last March met lukewarm response, leading observers to worry whether Nortel's ambitions were misplaced (see Nortel's HDX is Here and Nortel's HDX: The Future Under Fire ). The company's announcement of just two contracts for the switch didn't really change this perception (see Nortel Touches America and Optus Selects Nortel).

At least one analyst thinks the Chinese deal shows the HDX isn't getting buried or in danger of being shelved. "Nortel seems to have caught up in RFPs with other OEO switches," says Brian Van Steen, senior analyst at PointEast Research LLC.

Indeed, this win seems to have taken place against rivals such as Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Ciena Corp. (Nasdaq: CIEN), Lucent Technologies Inc. (NYSE: LU), and Siemens AG (NYSE: SI; Frankfurt: SIE) -- which are all bidding big in China. That Nortel won the job could signal it's overcome some earlier obstacles, either technical or related to pricing, two of the early HDX bugaboos.

Significantly, McFadden says Nortel didn't provide any vendor financing for the Netcom deal. "We aren't doing that anymore," he quips.

Is the deal a sign of Nortel's newfound dominance in the Asian market? This one's tough to gauge. Nortel's definitely aiming for lots of China business, as indicated in ongoing announcements (see Nortel to Build Chinese Backbones, China Mobile Picks Nortel, and Nortel Expands China Contract). Still, in its earnings report last week, Nortel didn't break out its earnings in the Asia/Pacific region, indicating instead that these earnings are part of the "other regions" (besides the U.S., Europe/Middle East/Africa, and Canada) that comprised about 18 percent of Nortel's 2002 revenues. What's more, the "other regions" sales were down 46 percent last year, more than any other regions tracked.

Even if sales go up in China this year, that may not correlate to high dollar figures. Analysts have warned recently that placing too much hope in China wins may be a mistake for investors, since margins and pricing are significantly lower there (see Is a Bubble Building in Asia?).

Bottom line? Perhaps McFadden's right, and any enthusiasm about Nortel's news should be tempered with caution. Then again, as Van Steen says, "Any contract in this market is good news." Whether it's really good news, or news of any significant impact, remains to be seen.

— Mary Jander, Senior Editor, Light Reading
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litemyfiber 12/5/2012 | 12:46:11 AM
re: Nortel Bolsters HDX Case >>I suppose nothing can make you happy. If they lose, all of you would have said what losers they are and how are they doomed. Now that they have won, all of you say that this was a true win. I wonder what does NT have to do to please you. By the way, I am not and have never been a NT employee.<<

You put that very well. It is obvious what such types want, and the very fact of Nortel's success with these products in comparison to such talk proves them to be the losers they are. The bottom line is no other one vendor could have put a comparable solution together.

LR's lame attempt at journalism is telling here too. All of the links to all of their judgemental stories that are ultimately proven by Nortel's success to be lame, sorry attempts to manipulate opinion and market perceptions.

The perception is only the reality if you don't know any better.

Repeating the same drivel a million times doesn't make it the truth.
optical_leaders 12/5/2012 | 12:46:07 AM
re: Nortel Bolsters HDX Case Although in principle I agree with you that even the most positive article on this board there is always negativity to follow, this Nortel win is nothing to "write home about".

3 customers announced and all unknowns or "Nortel accounts" - when (or should I say IF) Nortel win a Tier 1 (RBOC, PTT) customer, THEN people can say the HDX actually works......
uknetworker 12/5/2012 | 12:46:04 AM
re: Nortel Bolsters HDX Case
Not when the line system is an older technology which is offered at bargain prices and the HDX is latest and greatest. While I am sure that the margins (or lack of them) on the HDX are nothing to get excited about, I can assure you that Nortel do not give 4 free HDXs just to sell some 1600G amps. Netcom know what they are getting, they will have pulled those wheels well in advance of buying, just like every other Chinese carrier.
Given that Nortel will have won based on their overall network solution - its a big network and would require multiple DX boxes at some major sites where rings meet. HDX does the same job and comes in around the same cost/price with an added bonus of an evolution story. Maybe its just that simple?
Machavelli 12/5/2012 | 12:46:00 AM
re: Nortel Bolsters HDX Case I grant it, that Nortel has technologically advanced products when compared with its competitors (Lucent & Ciena). But for those who know the Chinese market well, having lead edge technologically is not the key selling point.
The Chinese telecom market is a very price sensitive arena and what won the Nortel deal is pricing and major concessions.

Nortel has historically taken big losses on initial deals to get their foot in the door. (e.g. PacBell, AT&T, Sprint, Reliant, etc.)

I would put the Chinese a level higher in terms of negotiation skills. To get any business in China; Siemens and Motorola had to build major research facilities (staffed with Chinese) there. You can bet Nortel made many concessions on this deal. You can bet the Chinese are taken full advantage of Nortel's woes and I would bet they negotiated major financing with Nortel as one of the terms of the deal

optical_leaders 12/5/2012 | 12:45:59 AM
re: Nortel Bolsters HDX Case "I grant it, that Nortel has technologically advanced products when compared with its competitors (Lucent & Ciena). "

Hello........are you in the same telecoms world as the rest of us? First to market with 10G does not mean more advanced products. What was the last Nortel product that could be considered "advanced"?

No "real sales" of the HDX i.e. RBOC/PTT and no evolution for DWMD.

It is quite simple Nortel won this deal because:

a) They were an incumbent already
b) They gave away the DWDM for nothing from their massive stocks.
uknetworker 12/5/2012 | 12:45:55 AM
re: Nortel Bolsters HDX Case

I am genuinely interested in the advantages you think that Coredirector and the Lucent box (what is it?) have over HDX. I wasn't aware that Lucent had a 640G box?
lucifer 12/5/2012 | 12:45:53 AM
re: Nortel Bolsters HDX Case optical_leaders wrote:

...No "real sales" of the HDX i.e. RBOC/PTT and no evolution for DWMD....

China Netcom (aka China Telecom North) is not a PTT? CNC is not a real carrier...

Never understimate the importance of China carriers; along with India, this is the only market really buying Optical LH at present. The competition is fierce and CNC is beholden to no-one.

Nortel is strong in PRC but not by any stretch the only optical vendor. Congrats on winning!

Sounds like sour grapes to me...

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