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

myoptic 12/5/2012 | 1:33:12 AM
re: Wireless Key to Nortel's Allure Chambers gave the press (including LR) a head-fake by starting the Nortel partnership rumor and they took it hook, line & sinker. Real objective was to distract attention from the Procket PR fiasco and it worked like a charm.

Any rational observer knows a Nortel-Cisco tie-up will never happen. Nortel is a Canadian icon and the politicians up north would never allow it to be sold to a US company. As for partnership, their deal w. Avici prevents Nortel from partnering with another router company for 3 years.

Kudos to Cisco's PR team for playing the press like a fiddle.
materialgirl 12/5/2012 | 1:32:54 AM
re: Wireless Key to Nortel's Allure Maybe not NT, but what smaller wireless company might CSCO want? Does this comment imply they have no faith longterm in wireline access, even to business? What are their customers saying about future access purchases?
hitekeng 12/5/2012 | 1:32:03 AM
re: Wireless Key to Nortel's Allure Rational observers know better in rational and traditional times and the times are NOT rational these days.
So think outside the box....
A conditional (e.g. R&D remaining in Ottawa, closing down Montreal's, downsizing Atlanta's...) deal between Cisco and Nortel is plausible if it meant slowing down Hawaei and similar competitors (who are literally buying out market shares with FOCs left and right) in the North American and global markets. Nortel's top brass have already expressed concerns about Hawaei and Hawaei is already eating up into Cisco's market slowly but surely (hey, would you NOT buy a Cisco's cloned router at a fraction of cisco's price from Hawawei now would YOU???).
Although China is now being sourced for its low cost manufacturing, even India is beginning to worry about losing its software exporting leadership to the chinese and you can not blame them. Already China is number 4 (based on 2002 estimates) with over $3Billions US in s/w development exports behind India, Ireland and Israel. By 2006, it is estimated that China will match India's with over $26 Billions in software business to either country (yep, the chinese are already feverishly learning English to close the gap with India...). So there it is, you all know where China stands today in Manufacturing and with $26B in global software exports, I'll leave the rest to your immagination....
So now ask that question again and ponder....
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