Optical/IP Networks

Wireless Key to Nortel's Allure

It's not often that Nortel Networks Ltd.'s (NYSE/Toronto: NT) investors have reason to say "Thank You" to Cisco Systems Inc. (Nasdaq: CSCO) CEO John Chambers, but yesterday was one of those days.

The Canadian vendor's share price jumped by more than 7 percent to $4.40 as Chambers blew a kiss in Nortel's direction, a move seemingly prompted by Cisco's admiration for its rival's wireless know-how.

That flirtatious moment came as the Cisco CEO told an audience in Toronto that he'd love Nortel to become a Cisco partner, according to a report from Reuters. Chambers then played down suggestions that his company might make a bid for Nortel, saying Cisco specialized in small acquisitions. He did not, however, totally rule out such a move. [Ed. note: His lips say "No," but his eyes...]

But most observers discount the notion of an outright bid on Nortel's business by Cisco. For one, the Canadian government probably wouldn't like one of its largest technology employers being handed over to an American powerhouse. Second, it makes far more sense that Cisco would try to partner with Nortel in certain areas, or perhaps bid on pieces of the most valuable assets.

The incentive for Chambers to suggest such a relationship seems to lie in Nortel's experience in wide-area wireless systems. The Brampton-based vendor has carrier customers all over the world using its second- and third-generation networks based on both major mobile technologies, GSM and CDMA.

Industry sources say Cisco covets such wireless gear and that the IP router player has cast its eyes over Nortel's assets before now. Given that any sort of acquisition play would attract the attention of the Canadian government and regulators, a partnership would seem the obvious route. How better to tap Nortel's big wireless accounts with some of the world's largest service providers? Cisco has already shown it's prepared to forge such relationships (see Cisco, Ericsson Join Forces).

Whatever the end-game, the short-term rise in Nortel's share price comes as a welcome relief to its investors and management, following months of negative news (see Nortel Rattles Nerves, Nortel Fires CEO, Nortel Gets Federal Subpoena, and SEC Pops In on Nortel).

— Ray Le Maistre, International Editor, Boardwatch

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