Neptune Changes Orbit

Nortel Networks Ltd. is shifting gears with its MPE 9000 router line, targeting wireless and voice-gateway territory rather than the ballyhooed multiservice edge.

The company says the MPE 9000, previously code-named Neptune, hasn't been discontinued, and that the system began shipping in general availability last quarter. But in reviewing R&D priorities, Nortel didn't like its chances in the carrier multiservice edge -- an area dominated by Cisco Systems Inc. (Nasdaq: CSCO) and, more recently, Alcatel (NYSE: ALA; Paris: CGEP:PA).

The news came to light in a note issued this morning by analyst Chris Umiastowski of TD Newcrest (a division of TD Securities). He called the move "disappointing but not entirely unexpected."

The MPE 9000 was a colossal effort by Nortel, requiring a year's work from a 250-engineer team that started from scratch. The idea was to incorporate Layer 2 functions -- as Nortel's Passport and Shasta lines did -- while adding strong Layer 3 support, a combination that carriers were demanding at the time.

Originally slated for 2004 shipment, the MPE 9000 had been hampered by delays. (See Nortel's Neptune Surfaces, Neptune Arrives, and Neptune Nears Earth.) The product did reach general availability last quarter, says Jake Power, Nortel senior manager of product marketing.

Nortel is characterizing the move as a prioritization matter, noting that development work on the product is being shifted to emphasize wireless and voice markets rather than data routing. Officials say that while the MPE 9000 was developed as a data router, Nortel's other goal "was always for it to be a platform to the company," Power says.

"The market window on the carrier data piece was closing a little bit quicker than we could address it, and although we could have been a market leader there, it would have taken time. We're trying to focus on where we think we can lead in the near term."

Nortel is "redeploying" some employees as a result of the changes, but no layoffs are yet planned, Power says.

Umiastowski noted that the move might signal an effort by new CEO Mike Zafirovski to reconsider Nortel's R&D spending. "If Nortel has to take some bad press to refocus its R&D dollars in a more effective way, so be it. It's probably the right move," Umiastowski wrote. (See Nortel's New Faces Face Tough Task.)

The MPE 9000 has already shipped into a wireless core network. A voice-gateway version of the product is on the way, probably appearing under its own brand name, Power says: "That's just a market timing thing. If you look at media gateways, the timing is further out than for some of the wireless applications."

The MPE 9000 emerged in 2004 when multiservice edge routers were all the rage. Companies including Alcatel, Ciena Corp. (NYSE: CIEN), ECI Telecom Ltd. , and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) got into the game via acquisition, while others such as Cisco, Nortel, Hammerhead Systems Inc. , Juniper Networks Inc. (NYSE: JNPR), Lucent Technologies Inc. (NYSE: LU), Redback Networks Inc. , and Riverstone Networks Inc. (OTC: RSTN.PK) offered their own boxes for the market.

It was all part of the carrier trend toward network convergence, putting all traffic onto a single core based on Internet Protocol (IP) and Multiprotocol Label Switching (MPLS). The multiservice edge router was to be the box channeling these different traffic types onto that core.

But the multiservice market has changed during the past year. An obsession with IPTV has brought Ethernet to the fore, as the service is likely to require virtual truckloads of Gigabit Ethernet feeds to be shunted around the edge network.

Under the new IPTV assumptions, Alcatel has built an apparent lead with its 7750 and 7450 routers, based on technology acquired with TiMetra Networks. (See Alcatel Router Revenues Surge.)

Market changes weren't the sole source of Neptune's woes, however. The box reportedly was felled by technical problems that led to delays in shipment. While one source last year pointed to hardware difficulties delaying the MPE 9000, Umiastowski believes software was the culprit.

"We have not been able to confirm these details entirely, but we suspect that Nortel may not have been able to get an adequate software feature set to work in order to be competitive with the other players in the market," he wrote in today's note.

At this point, Umiastowski suggests Nortel should "just stay away" from carrier routers, given that the company lags competitors too much. "By contrast, the enterprise router market continues to be an opportunity for the company. Convergence is clearly happening in the enterprise (VOIP is a big driver here), and Nortel is fairly well positioned given its legacy voice strengths."

Nortel also continues to make carrier Ethernet a priority, Power says.

Umiastowski doesn't expect the Neptune news to affect Nortel's stock much, as the product's delays left investors with low expectations. Nortel stock was down 10 cents (3%) at $3.04 early this afternoon.

— Craig Matsumotowski, Senior Editor, Light Reading

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rwelbourn 12/5/2012 | 4:08:43 AM
re: Neptune Changes Orbit What, no comment from any of my ex-colleagues in Nortel's Billerica campus, or is 600 Tech Park empty now?

Nope, I guess they all migrated up the road to Juniper...
hitekeng 12/5/2012 | 4:08:32 AM
re: Neptune Changes Orbit Bob Ferchat and Stern went after "Vision 2000" (turned out for 2000 employees company.."
John Roth made a "Right Angle Turn".... (we know where it led)
Billy had been telling us that "This is the way, this is NORTEL"... (it is allright)
Your turn Mike... Please do something...
dav_006 12/5/2012 | 4:08:32 AM
re: Neptune Changes Orbit It is so strange to see that this topic is so quite GǪ I guess people already saw this coming. I thought that Neptune was a signal to the market place that Nortel at last had finally learnt how to build a router. This is big blow to investors in Nortel as it is a signal that this company is totally lost and does not know where to spent itGÇÖs R&D dollars. If this was in Formula One Race and your car keeps constantly failing it would be a big blow to the brand and who really would buy that car??? I guess that is why Nortel is not getting even a slice from BT, Telstra, Verizon, BSNL GǪ it must be so hard working for Nortel, as it is so lonely standing out there in the cold. A company that invests more on R&D as compared to its competitors surely has very little to show for it.

A note to the company executives:

- The executives should try to establish an entrepreneurial culture that inspires individuals and groups to engage in corporate entrepreneurship. A friend of mine at Nortel mentioned that there are 4000+ managers there, that would mean one in seven I a manager which is very high and for any innovative company in R&D that is far too high, and the structure seriously needs to be flattened.

- Nortel spends far too long worrying about its competitors while the answer is internal, and should focus on making its own business better all the time. A business that grows by developing and improving do no die. I feel that Mr. Z will help the company with several of its internal issues with six sigma but the first point (innovation) will suffer .. but only time will tell.

- Nortel continued to for partnerships and acquire companies that made no sense. They should have bought Laurel, but spent money buying PEC GǪ I would love to talk to some of the key decision makes GǪ and say GÇ£You are FiredGÇ¥. What Tasman brings to the table I am not sure yet but GǪ it canGÇÖt replace what Neptune was offering.

- Nortel needs to focus on innovation and not worry about trying to imitate what is already in the market place. Once you decide to go for that market place to fight against Cisco, and Juniper you have to put more that 200 engineers or donGÇÖt worry about entering the market place. That is because first over reaps all the advantage.

- The company needs to determine how to harness the ingenuity of its employees and reward them for their entrepreneurial activity while retaining some of the rewards for the shareholders. I guess for that the company first needs to make money in the first place.

- The new focus for Neptune, are you sure you are doing the right thing as Passport and Shasta already satisfy that market segment??

Ok .. I am just going on and on .. sorry about that GǪ

Regards GǪ.
futureisbright 12/5/2012 | 4:08:30 AM
re: Neptune Changes Orbit is McNeely still "in charge" of Neptune?
Pete Baldwin 12/5/2012 | 4:08:28 AM
re: Neptune Changes Orbit dav_006 says:
The executives should try to establish an entrepreneurial culture that inspires individuals and groups to engage in corporate entrepreneurship.

dav_006 was trying to point out the number of levels of management in Nortel, but I think he's touching on another interesting point ...

The MPE was built from scratch, a purpose-built box. Very ambitious stuff, the kind of thing a startup would try to do.

Is Nortel (or any large company, actually) just unable to pull this off? Is this a classic case of a large company losing its ability to innovate?

Yes, I know the MPE isn't completely dead, but it very much missed a key target market.
stephencooke 12/5/2012 | 4:08:27 AM
re: Neptune Changes Orbit Craig,

At the moment the innovation has been effectively stifled in many of the larger companies. This is due to the fact that people who innovate tend to offer 'out-of-the-box ideas' which, by very nature, rock the boat. When >2/3 of the corporate workforce has been let go, rocking the boat is a really scarry thing to do.

To come out of this doldrum, Nortel has to tell its employees that the layoffs are over for at least a year or so, so that the innovators can come out of their caves and do their stuff again.

stephencooke 12/5/2012 | 4:08:23 AM
re: Neptune Changes Orbit Seven,

When I was at Nortel, BNR at the time, the best products that were brought to market were the optical and wireless units. Both of these were started with small 'skunk works'-type groups (ie: a small group within a big company).

I think we can both agree that neither Nortel nor Lucent is very good at the Cisco method (spin-ins). They have tried it frequently and failed. Their best advances have come from home-grown internal developments and a way to fit those products into the bigger picture.

I talked with several of my former co-workers, several who still work at Nortel, just before Christmas and their cut was a good part of what I said in the earlier post on this thread.

In terms of management we agree. From the outside it appears that Mike Z. is building an executive of people who know what to do once they are shown where they need to go. The things that I have seen Nortel announce seem mainly like improvement in specs for current technologies. Though individually impressive there appears to be no common thread, no market positioning that brings it all together, no obvious decision of what 'to be good at' as you say.

Actually I have tried to propose some strategy for Mike on the technical side but appear to have been unsuccessful in my efforts. I am sure he is getting this kind of thing from all sides at the moment. Without a visionary CTO to lean on I think their tough times will still last a while even if their execution improves. For big companies there are no overnight solutions.

Actually Nortel has farmed out a lot of their 'legacy' support to Flex. Entire design groups moved from Nortel to Flex to continue what they were doing in-house. I have no idea what that does to the bottom line other than reducing headcount and sales margin on those product lines.

donniall 12/5/2012 | 4:08:23 AM
re: Neptune Changes Orbit Actually - advances in digital switching in 1980's aside - what innovations have Nortel ever brought to the market?? There's this huge fallacy, misconception that Nortel have pioneered all these wonderful innovations? Where??
The so called 'Optical innovations' that Nortel drove in the 1990's often leveraged innovations by others at the component level. At best it represented an incremental improvement at the product level, but certainly not innovation .....
This is a company that, although continually claiming to be at the center of IP networking, have continually failed to produce a router strategy ... Show me a single Nortel branded router in any core network (be it ISP, traditional carrier or whatever ......)?
The recent Tasman acquistion proves that Nortel continue to struggle at the most elementary levels with IP ..... If I was a consultant the most basic, honest advice you could offer Nortel on an IP strategy is:
'Just hope it goes away'!! : ))
paolo.franzoi 12/5/2012 | 4:08:23 AM
re: Neptune Changes Orbit

I agree and disagree with you. Starting and stopping layoffs will have no effect here. The fundamental problem is how does a large corporation do something new or different? This would involve a unique take on a problem, and would generally fly in the face of conventional wisdom. The problem that large bodies face (of all types) is that conventional wisdom rules. Cicso solves this problem with spin-ins and purchasing small technology companies. Cisco realizes that inside the company it is impossible for it to do anything truly innovative. So, it doesn't try. It spreads money around and watches others innovate. Successful innovations get acquired.

Nortel thus has two problems:
- It needs to get a management team that realizes that there has been a fundamental shift in networking.
- It needs to come up with a way of creating a strategy that allows it to innovate.

Problem that both Nortel and Lucent have is: "What do I want to be good at?" Today, I could not recommend any specific strategy to them. They first must figure out where they want to be, then a strategy can be developed.

Lucent and Nortel both share another problem. Too many people on old products.


paolo.franzoi 12/5/2012 | 4:08:22 AM
re: Neptune Changes Orbit

I think the thing that is most often missed is the complete change in behavior in carrier's buying equipment.

The biggest issues are not technical at this time, but business related. For example, in the old days (say 1996) RFPs used to come out regularly for updating existing product sets in areas for which carriers already were deploying. Fast forward to today. When is the last time that an RFP was issued to cover an existing product area?

The biggest single change has been the implosion in price per bit. The ramifications of that single fact are apparent from a strategic standpoint in all that is occuring. People are not thinking rationally about the implications of this and what carriers (and MSOs) are doing about it.

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