Nortel Dogged by Competitors

Just days after Nortel Networks Corp. (NYSE/Toronto: NT) announced another disappointing quarter, new evidence points to the company losing some of its long-haul optical transport sales to Ciena Corp. (Nasdaq: CIEN) and Corvis Corp. (Nasdaq: CORV) (see Nortel Says It Sees Clearly Now).

Last Wednesday, Corvis announced that it had won a deal with Williams Communications Group (NYSE: WCG) to supply the carrier with its CorWave ultra-long-haul DWDM platform (see Williams Deploys Corvis). The gear was specifically selected to provide a 10-Gbit/s link between Washington, D.C., and New York City for Progress Telecom, a Williams customer (see Williams Makes Waves for Progress).

Sources say there is a large probability that some of those sales came at the expense of Nortel, even though the deal revolved around an existing contract between Corvis and Williams.

Nortel had been supplying Williams with 10-Gbit/s long-haul DWDM in other parts of the Williams network and had been considered for the Progress Telecom link, say sources. But Williams decided to go with Corvis, which up to this point had only supplied the carrier with OC48 (2.5 Gbit/s) long-haul gear, because Corvis was able to get the link installed and running live traffic within 48 hours of delivery. This is much faster than the two to three months it takes to provision other systems like Nortel’s.

Financial details of the Corvis-Williams deal haven’t been made public, but a Corvis spokesperson says that this purchase order is being counted as part of the existing $300 million contract that Corvis has with Williams.

Elsewhere, rumors continue to swirl that Nortel has lost another contract for its long-haul transport product with Qwest Communications International Corp. (NYSE: Q), as originally reported by Briefing.com last week. Both Ciena and Nortel supply Qwest with long-haul transport gear. Sources say that Ciena’s bids have been coming in lower than Nortel’s, winning them the business and tilting the momentum in Ciena's direction.

Analysts see the new contract battles as evidence that Nortel is losing its long-time grip on the long-haul optical transport business. And that business appears to be flowing to younger, more nimble companies.

“Nortel has a huge installed base, but I think the issue is, are they successfully making the transition to next-generation products?” says Rick Schafer, an analyst with CIBC World Markets. “In the past, Nortel could use its might to undercut competitors and win deals. But today they don’t seem to have the same leverage.”

Nortel declined to comment regarding the situations at Williams and Qwest. The spread of rumors has caused concern at Qwest, which has issued an internal memo to its staff threatening dismissal of anyone who discusses customer contract wins with outside analysts or press, says one source. Qwest also refused to discuss its supplier contracts.

“Nortel has been talking about optical this and optical that for a while now,” says Kevin Slocum, an analyst with Wit Soundview. “But none of it seems to be flying off the shelf. Ciena has steadily eroded Nortel’s market share in optical infrastructure. I think they have a better box and a better portfolio of products. As far as Corvis goes, this is a pretty big win for them, too.”

Nortel appears to have lost some clout now that it has a weaker financial position. Mounting losses have caused its balance sheet to deteriorate, forcing the company to clamp down on vendor-financing deals that it once used as incentives to close business.

And although the long-haul market in general has suffered as telecom companies cut back on spending, Nortel appears to be losing business at a more rapid pace than others. In Q1 2001, which ended in March, Nortel's "inter-city" long-haul business reported revenues of $992 million. In Q2 2001 those revenues dropped to $293 million -- nearly a $700 million drop in revenue for one line of products. Third-quarter figures for this segment have not been published yet, but during the conference call last week the company reported a $750 million pretax loss for excess and obsolete inventory, mostly related to long-haul "optical inter-city" equipment that didn't sell.

By contrast, Ciena's revenues have been relatively stable, even though it's warned about a slower pace of growth (see Ciena's Day of Reckoning). And although Corvis revenues dropped in the last quarter, the company has not lost any of its existing contracts.

— Marguerite Reardon, Senior Editor, Light Reading
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flanker 12/4/2012 | 7:41:39 PM
re: Nortel Dogged by Competitors NT has good engineers and a good sales force, but, despite all the R&D, their LH equipment is definitely not next generation.

kephill 12/4/2012 | 7:41:38 PM
re: Nortel Dogged by Competitors Article is all fluff - no news.
whose 12/4/2012 | 7:41:37 PM
re: Nortel Dogged by Competitors This article is about rumors - what kind of journalism is that...now if the rumor was Nortel had won a deal at the sake of Ciena or Corvis, would the article have been published? I have my opinion...
exnortel2 12/4/2012 | 7:41:37 PM
re: Nortel Dogged by Competitors NT used to have vendor-financing in its arsenal. Now that the weapon is gone together with the vision and morale, how could you expect the company to compete against newbies that could offer pre-IPO shares ?
dodo 12/4/2012 | 7:41:36 PM
re: Nortel Dogged by Competitors Marguerite

May be it would be a good idea to get an interview with or get some answers from Greg Mumford or one of his execs to understand where the LH and ULH programs are going.

Forget about the spin doctors in Brampton ( they don't know LH from Metro)

A couple of misses ( for whatever reasons in this downturn economy) may not reflect the real picture.

kbkirchn 12/4/2012 | 7:41:32 PM
re: Nortel Dogged by Competitors "NT used to have vendor-financing in its arsenal. Now that the weapon is gone together with the vision and morale, how could you expect the company to compete against newbies that could offer pre-IPO shares ?"
You got it half right..

The vendor-financing is gone. But CORV & CIEN are public companies..

kephill 12/4/2012 | 7:41:31 PM
re: Nortel Dogged by Competitors NT has won contracts worth $1.2 Billion in China in 2001 and is still winning more contracts.

umustbejokin 12/4/2012 | 7:41:31 PM
re: Nortel Dogged by Competitors In other news Light Reading, The Global Site for Optical Networking announced today it will be changing it's name to California Dreamin'
kephill 12/4/2012 | 7:41:26 PM
re: Nortel Dogged by Competitors I'm glad I have LR to tell me Nortel has competitors. I thought they were a monopoly. (sarcasm intended)
ben35bates 12/4/2012 | 7:41:25 PM
re: Nortel Dogged by Competitors For all those people worried about the future of Nortel, consider the comments of John Roth at last week's quarterly call.
He said that with Frank Dunn in control there will be no changes in the product and selling strategy. In addition, he said that key senior executives who were worried about big change are comfortable because they know where they stand with Dunn.
In all the chatter about Ciena, Corvis and others taking business from Nortel, the big culprit is getting ignored. Lucent. They have opened up a big edge in overall sales since the spring quarter and they have taken market leadership of the long-haul optical market. It's very depressed market and they are probably doing it by selling older OC-48 stuff at rock bottom prices, but they are doing it. Not bad for a company that is in worse fiscal shape than NT.
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