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Nortel Confirms LG Deal

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LR Mobile News Analysis
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1/25/2005

Nortel Networks Ltd. (NYSE/Toronto: NT) has confirmed earlier speculation surrounding a joint venture deal with South Korean CDMA network vendor LG Electronics Inc. (London: LGLD; Korea: 6657.KS). (See Nortel Teams With LG.)

The Canadian company this week announced vague details of the partnership, initially touted back in September last year (see Nortel Hushes on LG Deal).

Nortel will hold a 50 percent stake, plus one share, in the venture -- dubbed "LG-Nortel Networks" -- and LG will hold the remaining stake. Financial details were not disclosed, but an analyst note from Pat Chiefalo at Merrill Lynch & Co. Inc. puts Nortel’s price tag “at about US$640 million.”

According to a joint statement, the infrastructure deal will see the two companies team on the manufacture and sale of both wireless and wireline gear “in Korea and other markets globally.” LG’s equipment portfolio consists mainly of CDMA wireless infrastructure kit and ADSL access equipment. Nortel is an established global player in wireless, wireline, optical, and enterprise markets.

Analysts believe the deal is in keeping with Nortel’s recent efforts to ramp up growth in Asia. “Combined with the China Putian announcement, this really signals that Nortel is serious about growing its presence in Asia and following through on their strategic goals,” comments Peter Jarich of Current Analysis (see Nortel Teams on Chinese 3G).

"Putian-Nortel will be China focused -- from a customer and market perspective -- and LG-Nortel will have a Korea market focus," notes a Nortel spokesperson in an email to Unstrung. "They are complementary and are a part of our 'Asia Strategy.' " Meanwhile LG looks set to benefit from the support of a Tier 1 infrastructure vendor. LG has achieved limited success in the wireless infrastructure market, and the majority of its sales are focused on local carriers KT Freetel Co., LG Telecom, and SK Telecom (Nasdaq: SKM).

“Profitability has been challenging for the Korean player, with operating profits of 4.2 percent in 2003 and expected to be in the mid-single digits for 2004,” notes Merrill Lynch’s Chiefalo.

— Justin Springham, Senior Editor, Europe, Unstrung

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