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Optical components

Nortel Fire Sale

In one of the largest liquidations of optical gear yet, Nortel Networks Corp. (NYSE/Toronto: NT) is selling off a large portion of the equipment it bought for its high-performance optical components business, which it launched in May 2000 (see Nortel Remolds Its Component Business).

The worldwide sale, which is being handled by U.K. auction firm Henry Butcher International Ltd., appears to be part of Nortel's ongoing efforts to pare expenses (see Nortel Says It Sees Clearly Now). It includes more than 20,000 items from components plants in Paignton, U.K.; Kanata, Ontario; and Monkstown, Northern Ireland. Component gear in Zurich, Switzerland, where Nortel purchased a manufacturing subsidiary of JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) last February is also on the block (see Nortel Buys JDSU Plant for $2.5B).

Nortel says the sales "aren't related to, or happening because of," the closure of any specific plants. But the sheer volume of equipment being jettisoned clearly signals the end of Nortel's hopes for building its high-performance optical component business on a grand scale.

Nortel won't quantify the amount of gear it's selling, but representatives of Henry Butcher say the total value is "a very large figure."

A glance at the roster of gear being sold indicates it could be worth hundreds of millions of dollars. Optical spectrum analyzers, for instance, can cost upwards of $50,000 apiece, depending on configuration. At one location, Nortel has a slew of the leading models for sale, many bought this year. Other high-ticket kit includes vector network analyzers, thermal shock ovens, robots, laser welders, and pick-and-place machines for optical component assembly.

In Paignton, where Nortel reportedly made lasers and optical amplifiers, privately negotiated treaty sales already have opened for racks of testers from Agilent Technologies Inc. (NYSE: A), Anritsu Corp., JDSU, Keithley Instruments Inc. (NYSE: KEI), and Tektronix Inc. (NYSE: TEK), among others. Robots, laser welders, die bonding machines, and other paraphernalia are also available.

Auction dates for the Paignton site are December 4, 5, and 6. Each auction will be accompanied by Webcast bidding.

In Ottawa, Nortel is selling more than 200 devices used in gallium arsenide wafer fabrication and indium phosphide laser processing. The gear is associated with the 147,000-square-foot plant Nortel completed in September 2000. As in the U.K., private negotiations are currently open. A public auction is slated for November 28 and 29.

Little information is available on exactly what's for sale at Nortel's facilities in Northern Ireland and Zurich, which specialized in pump-laser components. Henry Butcher says plans are underway, however, and it will post these to its Website as soon as possible.

All the gear is for sale "as is," the auctioneer says, without any warranties. Those who buy the gear will have to negotiate their own support terms with vendors or integrators.

The sale of so much equipment raises a flag for the companies whose devices are being sold. Sizeable amounts of cheap testers on the market could conceivably affect sales for equipment firms whose revenues already are under pressure from the economic downturn. On the other hand, the auctions could also mean brisk business for integrators involved in the second-hand equipment market (see Stocking the Optical Thrift Shop)

Agilent, Keithley Instruments, and Anritsu declined to comment for this article.

Nortel launched most of the plants involved in the present sales early in 2000, in the flush of its optical expansion plans. Already, they have taken considerable cuts -- Paignton has lost half of the 5,000-odd workforce originally assigned there, according to U.K. news sources. In Northern Ireland, which served as an R&D center, there were roughly 330 engineers assigned earlier this year.

Exact figures weren't available at press time for the other facilities, nor was it possible to determine if the sales signal a pending closure of any of these plants.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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Belzebutt 12/4/2012 | 7:38:25 PM
re: Nortel Fire Sale This means that Nortel will not be a viable competitor when the Optical market re-flurishes. They have cut too deep to recover. I strongly believe that they are setting up to be acquired. Their management may believe that if they cut down to the point where duplication is not an issue for acquisition, they can be acquired by Cisco, Alcatel, etc. But they may also be missing the point; if you got nothing, why would I buy nothing.

Sure, it makes a lot more business sense to have factories full of equipment that you don't need, because you only produce 1/2 as much as before.
rafaelg 12/4/2012 | 7:38:27 PM
re: Nortel Fire Sale This means that Nortel will not be a viable competitor when the Optical market re-flurishes. They have cut too deep to recover. I strongly believe that they are setting up to be acquired. Their management may believe that if they cut down to the point where duplication is not an issue for acquisition, they can be acquired by Cisco, Alcatel, etc. But they may also be missing the point; if you got nothing, why would I buy nothing.
nextgen_guy 12/4/2012 | 7:38:34 PM
re: Nortel Fire Sale I think you read the article wrong. This sale is equipment used to produce components, not the components themselves. They're not just writing down inventory, they're gutting their factories.
flanker 12/4/2012 | 7:38:35 PM
re: Nortel Fire Sale Technically, the phrase "appears to be part of Nortel's ongoing efforts to pare expenses" should read "... efforts to reduce inventory overhang..." since inventory is not an expense item but a balance sheet item.

When a product is ordered, parts are pulled from inventory in which case inventory would become a "cost of goods sold" line item in the income statement.

Since this stuff is not being shipped in any meaningful sense of the word, it is an inventory charge off.


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