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Nortel Unifies Optical

Nortel Networks Corp. (NYSE/Toronto: NT) has moved its metro and long-haul optical products under one Optical Networks division headed by Brian McFadden, who formerly headed the company's optical long-haul division.

"It made sense operationally. And Brian has a lot of metro experience," says a company spokesperson. Nortel's also intent on integrating its optical technologies in future metro and long-haul offerings. So moving it under one roof seemed the best way to proceed.

When reports of the division change hit the Canadian papers this morning, it was unclear whether by taking over metro optical as well as long haul, McFadden wouldn't be displacing colleague Frank Plastina, who heads up Metropolitan and Enterprise Networks. That's absolutely not the case, Nortel says. Plastina will continue to be in charge of Nortel's intelligent Internet, VOIP, enterprise, and optical Ethernet product lines.

Nortel continues to have three divisions: Wireless, headed by Pascal Debon, as before; the new Optical Networks, headed by McFadden; and Metropolitan and Enterprise Networks, headed as before by Plastina (who was once, back in the Roth era, widely considered a CEO-designate).

Debon, McFadden, and Plastina continue to report to CEO Frank Dunn.

"There's been no management change," says Greg Mumford, CTO of Nortel. "All we've done is add a bit to Brian's responsibilities."

An internal memo from Dunn, apparently issued to employees last week, outlines McFadden's new responsibilities: "Brian will have P&L responsibility for the combined Metro Optical and Long Haul business. His accountabilities include investment decisions, priorities and product marketing for non-Optical Ethernet applications, as well as R&D deliverables for all optical products, including optical product requirements for Optical Ethernet solutions."

In an interesting twist, McFadden is taking on all of Nortel's DWDM and next-gen Sonet products, including the OPTera Metro 5200 and 3500 series, spokespeople say. But several so-called optical Ethernet products, including the OPTera Metro 1000 series and the Passport 8600, are staying with Plastina's division. To make matters hairier, Plastina will continue to focus on optical sales to enterprise customers.

The split's a confusing one, especially since Nortel acknowledges that the OPTera Metro 5200 and 3500 series can be used in optical Ethernet applications. Indeed, it raises questions about how permanent this latest deck shuffling will be.

"It wouldn't surprise me from a reporting basis if Nortel was to reduce its structure to only two divisions -- wireless and wireline," says a Canadian financial manager, who asked not to be named. It would be easy to just give Plastina a separate title, he says, if McFadden were eventually put in charge of all optical products. After all, the position of COO hasn't been filled since Clarence Chandran left last year (see Nortel's Empty Room at the Top).

Meanwhile, though, Nortel seems intent on its present strategy. Marco Pagani, who was head of the Metro Optical business under Plastina's direction, will stay in the Metro/Enterprise division, but will be in charge of a new Optical Ethernet business.

Analysts seem unfazed by the news. "Long-haul optics isn't expected to recover until late 2003 at the earliest, so I view it positively that [Nortel is] getting each division in a position to be profitable," says the Canadian analyst.

In other news, Nortel's managed to exceed expectations in the sale of its equity and common share offering made late last week. The overallotment, or greenshoe offering, has been taken up and oversubscribed, Nortel says, bringing in about US$1.475 billion instead of the originally anticipated $1.3 billion (see Nortel to Raise $1.3B and Nortel Increases Offering Estimate).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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zweisel 12/4/2012 | 10:16:38 PM
re: Nortel Unifies Optical techdocs wrote - "With Nortel Share Dilution of slightly over 40% at the recent price of $1.42, there is NO HOPE that Nortel will be here a year from now."

... you have a great business sense... NOT! The stock price does not mean a company is going bankrupt. It is the lack of cash to pay its debtors and the inability to meet covenants that bankrupt a company. The issue of raising cash in the equity markets will hurt.

You obviously want Nortel to go under but adly your dream will not come true.
dljvjbsl 12/4/2012 | 10:16:38 PM
re: Nortel Unifies Optical
You will be happy to hear then, that Dunn said he wants to make NT profitable in the CURRENT market, without waiting for and end to the downturn. Surely this would make you and the shareholders happy, isn't that what you just asked for?


I'm glad that Mr. Dunn is trying to do this. It is certianly better than the previous Nortel strategy of waiting for a recovery that keeps receding into the future.

Nevertheless the point still remains that in LH is not profitable and not likely to become profitable. It should not be subsidized by other divisions. Portfolio management is about investing in areas to get maximum return. LH is moribund now. If it does recover, it will be a low growth, low margin, highly competitive market with any number of competitors. This does not sound like a potential star business to subsidize. Rather it sounds more like a GĒ˙dogGĒÖ business that should be shed as soon as possible.

By the way it was Ross Healy who said that there is 10 to 20 years of capacity already installed. This is not a prediction that would support the idea of a profitable LH business.


Belzebutt 12/4/2012 | 10:16:36 PM
re: Nortel Unifies Optical Nevertheless the point still remains that in LH is not profitable and not likely to become profitable. It should not be subsidized by other divisions. Portfolio management is about investing in areas to get maximum return. LH is moribund now. If it does recover, it will be a low growth, low margin, highly competitive market with any number of competitors. This does not sound like a potential star business to subsidize. Rather it sounds more like a GĒ˙dogGĒÖ business that should be shed as soon as possible.

By the way it was Ross Healy who said that there is 10 to 20 years of capacity already installed. This is not a prediction that would support the idea of a profitable LH business.



So logically, do you also think LU should shed its LH business, along with Ciena and all the other players? So CIEN should just give up half its revenues and lay off all these people? CORV should just give all the money back to the shareholders and go home?

You keep talking about NT, but there are many companies that are a lot more dependent on LH and your scenario sounds a lot more grim for them.
dljvjbsl 12/4/2012 | 10:16:36 PM
re: Nortel Unifies Optical
So logically, do you also think LU should shed its LH business, along with Ciena and all the other players? So CIEN should just give up half its revenues and lay off all these people? CORV should just give all the money back to the shareholders and go home?


Yes, many of these companies should exit the LH business. The issue that you still have not addressed is profitability. None of these companies makes money on LH. LH must be able to support itself just like any other business. It is no good just to say that Nortel is doing no worse than anyone else since everyone elseGĒÖs losing money as well. This is just an indication that process of consolidation is about to being. This is a good thing. A few large players could make some sort of living in a low growth business that others and I expect LH to become. (note that this is an improvement over the high contraction business that it is now).

If Nortel has a specific capability that makes LH attractive to it, then perhaps there might be a reason for it to remain in the LH business. Perhaps this would be its established relationship with the telcos. This asset could presumably be exploited through a cooperative marketing agreement with Ciena or some other players, rather than trying to maintain a position in an unprofitable market.
Belzebutt 12/4/2012 | 10:16:35 PM
re: Nortel Unifies Optical None of these companies makes money on LH. LH must be able to support itself just like any other business. It is no good just to say that Nortel is doing no worse than anyone else since everyone elseGĒÖs losing money as well.

Unlike some others though, Nortel has other businesses that can subsidize LH for a while, like you pointed out. Despite that, NT wants to make the LH business profitable as soon as possible, without exiting the business. If others exit, those who rely too much on LH, it will just play to NT's advantage. I don't think exiting LH would be a smart move because there still is money to be made there, the companies simply need to start investing what's actually worth investing. Keeping investing in LH is indeed a risk right now, but some risks need to be taken as always.
zweisel 12/4/2012 | 10:16:35 PM
re: Nortel Unifies Optical dljvjbsl, ever hear of a loss leader product line?
OpticalPhonon 12/4/2012 | 10:16:34 PM
re: Nortel Unifies Optical Your analysis makes no business sense since stock price does not mean bankruptcy. It represents the near term outlook in terms of revenue. It is the amount of cash on hand versus the burn rate that dictates bankruptcy. Basic finance 101.
OpticalPhonon 12/4/2012 | 10:16:34 PM
re: Nortel Unifies Optical Also bear in mind that most of the planet does not even come close to the LH networks installed in the USA. It is very nearsighted to think that because the USA is saturated that vast untapped markets such as Asia, Europe, and South America represent no growth areas. Nortel is simply trying to reduce reduncies which is a very prudent and smart business strategy.
techdocs 12/4/2012 | 10:16:32 PM
re: Nortel Unifies Optical Oh really? Did you make it through High School yet? Can you read basic finance and perform basic math skills? Good! The READ AND LEARN:
http://biz.yahoo.com/fin/l/n/n...

ITS OVER - PERIOD.
Belzebutt 12/4/2012 | 10:16:30 PM
re: Nortel Unifies Optical http://biz.yahoo.com/fin/l/n/n...

Right, what I see is a steadily shrinking loss, shrinking SG&A, and at the same time a rising R&D (!) - i.e. this company believes strongly in its future. Don't forget the cash situation has improved too.

Thanks for the link techdocs, things are better than I thought :)
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