Is Ericsson the Hope for Nortel's MEN?

As Nortel Networks Ltd. reported a second-quarter loss of $274 million (and another big loss) today, it's worth noting that the yearly drop-off in revenues for its Metro Ethernet Networks (MEN) unit was steep, but still in line with the company's revenues overall, which fell 25 percent from the year-ago quarter. (See Nortel Reports Q2.)

That could be a glimmer of good news for the MEN group. And at least one analyst feels Ericsson AB (Nasdaq: ERIC) should step up as the big suitor in the bid to secure Nortel's optical transport market share. More on that in a bit.

First, have a look at how the MEN group isn't so far out of line with what we now call Nortel:

Table 1: Nortel Revenues (by Segment)
2Q08 2Q09
Carrier Networks ($B) 1.14 0.92 -20%
Enterprise Solutions ($B) 0.65 0.47 -28%
Metro Ethernet Networks ($B) 0.46 0.33 -27%
LG-Nortel ($B) 0.32 0.20 -37%
Other segments ($B) 0.06 0.06 -8%
Source: Nortel Networks

Table 2: Metro Ethernet Networks Revenues (by Category)
2Q08 2Q09
Optical Networking ($M) 292.00 211.00 -28%
Data Networking and Security ($M) 62.00 35.00 -44%
Services ($M) 101.00 87.00 -14%
Source: Nortel Networks

Nortel noted that some of its big customers last year didn't spend as much this time around, saying, in a statement, that "revenues from certain customers in the second quarter of 2008 that did not repeat to the same extent in the second quarter of 2009..."

While Nortel's MEN group is no worse off than the rest of the company, it does stand out because the bidding war for its assets appears nonexistent. Sources say Nortel still can't seem to find a suitor willing to shell out what it thinks (but hasn’t said) its optical transport group is really worth. (See Who's Waving Their Wad at Nortel’s MEN?, Selling Nortel's MEN, and NSN May Buy Other Nortel Assets.)

As hinted earlier, one analyst thinks Nortel's MEN group still has value, and he singles out Ericsson as the most logical suitor.

"At some price, MEN has to be valuable to someone, but it’s certainly a far cry from the prices Nortel was originally seeking," says Heavy Reading analyst Sterling Perrin.

"Ericsson still seems to be the best fit for MEN, based on Nortel’s North American presence in optical and Ericsson’s lack of optical networking market share. Most other potential suitors have a fair amount of overlap and so would really only buy or need bits and pieces of MEN," he says.

Also, it's a scenario that fits Ericsson's behavior, since the company is already in the process of using Nortel assets to strengthen its hand in North America. (See Ericsson Delivers Knockout Blow to NSN.)

Something should happen soon, though, because Nortel's MEN is losing its luster, even in the more cutting-edge technologies like 100-Gbit/s optical transport, Perrin notes. "I am seeing a lot of companies developing this technology internally now, so I’m not sure that Nortel’s 100G is as valuable as it was to suitors even 12 months ago."

— Phil Harvey, Editor-in-Chief, Light Reading

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DCITDave 12/5/2012 | 3:58:56 PM
re: Is Ericsson the Hope for Nortel's MEN? Well, he was fiddlin' at the time. Hard to do both.
Hanover_Fist 12/5/2012 | 3:58:56 PM
re: Is Ericsson the Hope for Nortel's MEN?

I believe Nero neglected to comment while Rome burned as well...

DCITDave 12/5/2012 | 3:58:56 PM
re: Is Ericsson the Hope for Nortel's MEN? Nortel didn't comment on this story. Forgot to note that in the story, though. So there.
James_B_Crawshaw 12/5/2012 | 3:58:55 PM
re: Is Ericsson the Hope for Nortel's MEN? I believe Nero was the subject of a smear campaign. Some sources indicate he was away from Rome at the time of the fire and on hearing of it returned to help put it out. This much we know: there were no fiddles in 1st century Rome. How history will remember (if at all) the Nortel debacle remains to be seen. However, I hardly think Zavirofski can be blamed for starting the fire. He was just unable to put it out.
Hanover_Fist 12/5/2012 | 3:58:55 PM
re: Is Ericsson the Hope for Nortel's MEN?

one can draw the same conclusion that the Nortel board of directors' and entire executive management chains' hands have been busy 'fiddlin' something too after the S.S. Nortel struck the iceberg and sits floundering and sinking in the water...

business as usual with Nortel, right?

Too bad the Nortel customers will suffer the same fate as those 3Com customers did as 3Com diddled their way into and out of the Enterprise market not so many years ago.

DCITDave 12/5/2012 | 3:58:54 PM
re: Is Ericsson the Hope for Nortel's MEN?

Now that Nero's publicist has weighed in, I think we can put the matter to rest.

Also, I happen to agree: Mike Z. didn't cause the mess at Nortel, but the sr. staff he brought in didn't help much in the way of clearing a path for him.

skyote 12/5/2012 | 3:58:53 PM
re: Is Ericsson the Hope for Nortel's MEN?

I don't believe Ericsson is eligible to purchase Nortel MEN after bidding on the CDMA/LTE assets.  In order to be a "qualified bidder", said bidders had to agree to not submit bids for any other Nortel assets for a period of 1 year.  In fact, this is why RIM was not accepted as a qualified bidder for the CDMA/LTE assets...they were interested in other Nortel assets, and are challenging the "qualified bidder" terms.

inauniversefarfaraway 12/5/2012 | 3:58:53 PM
re: Is Ericsson the Hope for Nortel's MEN?

Even in bankruptcy, Nortel succeeds in hobbling itself and potential suitors... Peotry in motion. Nice to observe such consistency.

As previously stated, it will be a bright and sunny future with Nortel erased from the face of the earth. Whatever nucleus of evil inside this thing, let us hope it fades into oblivion.

Many romantics out there refuse to believe Nortel may be evil, but it is. Whatever good is in there has been losing the battle for a long time. How could a culture of innovation be so helplessly lost to the idiots, the maniplators, the no-good?

The consolation is that destroyers are eventually destroyed themselves.

Is there hope to buy the rotating icon of evil, the chrome plated "O"? Probably have to agree to not buy from EBay for a year...

abashford 12/5/2012 | 3:58:52 PM
re: Is Ericsson the Hope for Nortel's MEN?

Feel better now 'inauniverse'?  Come on... let it out... its good for you.

Now if you'll excuse me, I have to go eat some babies.  "Baby-back-baby-back-baby-back-ribs..."


abashford 12/5/2012 | 3:58:50 PM
re: Is Ericsson the Hope for Nortel's MEN?


Why do I take exception to your rants:

1) The lack of added value to the discussion.

2) Your assertion that the people of Nortel are 'evil'.

Who is 'evil', where do you draw the line?  Is it the CEO?  The upper management?  Is the rank and file 'evil' for doing an 'evil' person's bidding? The people I work with on a day to day basis certainly are not, and those extend from the very bottom to very close to the top.  These people are some of the most capable and moral people I have ever come across, and it sickens me people like you feel some need to pile on and use words like 'evil'.  There are a bunch of other words you could have used and I would have just said 'well, he is entitled to his opinion', but 'evil' is out of line.

*Evil or 'morally reprehensible' indicates that a person's actions are intentionally to the detriment of others.  With the exception of one long-departed CEO to whom I have no personal visibility, I see nobody that even comes close to this behaviour.  Am I frustrated with some decisions that were made?  Yes, but I am not privy to all the variables that were at play in these decisions, and you certainly are not.  Inevitably when I dig, there are 'good' reasons behind every 'bad' decision.

Finally you state "You are also likely to be one of these people who belived that "Nortel would survive!""... You -of all people- are not a person that I would allow to put words in my mouth.  I certainly couldn't handle the sour taste.  I have not, and will not share my opinions on this topic.  I will however, attack you at every opportunity if you continue to apply your libelous paint brush to many people I respect and admire.  

It is YOUR behaviour that I see as evil*. 

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