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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
The Carmack 12/4/2012 | 7:37:57 PM
re: Nortel Fire Sale they are selling equipment that Nortel may need to ramp up at a future date.

So the choice is make a profit, or keep all your gear and all your people in hope that the recovery comes fast. We can all wish upon stars and whatnot, but seems like the second choice may be the safe route... If they become profitable at least they can hire more people and buy more equipment when things pick up, but if they go out of business it's forever.
rafaelg 12/4/2012 | 7:37:57 PM
re: Nortel Fire Sale "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..."

Folks,

No matter how much frosting or molasses we put on it(if the article is accurate), they are selling equipment that Nortel may need to ramp up at a future date.
To me, it appears the end of Nortel as an Optical competitor. But what do I know...I wouldn't be working if I was one of the "wonder boys"...

:-)
flanker 12/4/2012 | 7:37:59 PM
re: Nortel Fire Sale "They're not just writing down inventory, they're gutting their factories."

OK, but the original article was/is still wrong. The liquidation of property is not a reduction in expenses but an "asset impairment", which, like an "inventory write down", is an increase in expenses and a reduction in earnings, which hits retained earnings and reduces total assets and total equity on the balance sheet.

The only difference is the former is a short term asset and the latter is a long term asset.

ben35bates 12/4/2012 | 7:38:01 PM
re: Nortel Fire Sale NT built a big component plant, the Palladium buildings, in two phases of about 330,000 sqft, near the Ottawa Senators arena. It probably cost about $700k because it has super-duper aircleaning gear, backup water cleaning and power support, and was built round-the-clock with plumbers and electricians getting triple time on weekends last year. About half of it appears to have gotten into production before the industry collapsed. NT recently took a $91 mill write-off on an optical component plant in North America. It is probably that building.
So I think this means the Palladium Building is toast, at least for now, as a producing operation.
And now we have a very expensive office building with the world's cleanest air for some design engineers and executives. Anybody know anything more about this baby and whether all or most of the Ottawa gear on auction came out of the plant?
HarveyMudd 12/4/2012 | 7:38:02 PM
re: Nortel Fire Sale Lucent and Nortel are the true leaders in communications technology.

The downfall of Lucent started when they started acquiring junky companis. Both Lucent and Nortel billions of dollars, but 90% of these were hollow companies. For example, Lucent did not benefit in acquiring Ascend Communucations, Livingstone, Octel Communications and many other companies. Similarly Nortel acquisitions of Bay Networks, Alteon Networks,etc proved very fatal. Both of these companies did not understand the Silicon Valley culture and were fooled as the companies they acquired proved to be burrial ground for both of these companies.

Both Lucent and Nortels have some residuals in the Silicon Valley Area and losing millions of dollars every month. Lucent specially has failed to close down the reminder of these companies.
HarveyMudd 12/4/2012 | 7:38:03 PM
re: Nortel Fire Sale Lucent and Nortel are the true leaders in communications technology.

The downfall of Lucent started when they started acquiring junky companis. Both Lucent and Nortel billions of dollars, but 90% of these were hollow companies. For example, Lucent did not benefit in acquiring Ascend Communucations, Livingstone, Octel Communications and many other companies. Similarly Nortel acquisitions of Bay Networks, Alteon Networks,etc proved very fatal. Both of these companies did not understand the Silicon Valley culture and were fooled as the companies they acquired proved to be burrial ground for both of these companies.

Both Lucent and Nortels have some residuals in the Silicon Valley Area and losing millions of dollars every month. Lucent specially has failed to close down the reminder of these companies.
dodo 12/4/2012 | 7:38:03 PM
re: Nortel Fire Sale based on this article and what was proposed last year in April(2000), it looks like Nortel is out of the optical passive components business , sticking only with Silicon et al in Ottawa ( Lab 3) and Coretek.

Am I right!
Belzebutt 12/4/2012 | 7:38:15 PM
re: Nortel Fire Sale The equipment being auctioned off---if we go by the report---is equipment that can be used in other lines. It appears that it is "general use" from a test point of view. Now given that fact, if a company intends to keep in the market, why would they sell their generic rack-and-stack?

The article doesn't say *all* of the equipment is being sold, does it? A "large portion" of the equipment is being sold, which seems proportional to the "large portion" of revenues that disappeared from last year's high.
ivehadit 12/4/2012 | 7:38:16 PM
re: Nortel Fire Sale rafaelg,
survive the nortel meltdown? or not?
rafaelg 12/4/2012 | 7:38:19 PM
re: Nortel Fire Sale The equipment being auctioned off---if we go by the report---is equipment that can be used in other lines. It appears that it is "general use" from a test point of view. Now given that fact, if a company intends to keep in the market, why would they sell their generic rack-and-stack?

I don't think is an inventory that is not usable...

If I had the money and my own C.O., I would jump at this opportunity to re-equip my ageing line with newer-never-used HP instruments!
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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