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Optical/IP

Huawei Seen as Likely Nortel Suitor

BERLIN -- Carrier Ethernet World Congress -- Here's the question that's on everyone's lips here in Berlin: Who might try to buy Nortel Networks Ltd. 's carrier Ethernet and optical business? (See Nortel to Sell Carrier Ethernet, Optical Biz.)

To recap quickly, Nortel announced last week that it's looking to offload its Metro Ethernet Networks (MEN) business, which houses its optical and carrier Ethernet products. At the same time it reviewed its 4G wireless strategy and announced a profits warning. (See Nortel 4G Plans Up in the Air.)

Nortel wants a cash deal for MEN, but won't say if it is already engaged with any potential buyers.

It's also unclear what sort of price the business unit, which is on course to generate between $1.5 billion and $2 billion in revenues this year, might carry. Here in Berlin, the range of estimates (from those brave enough to guess) is anything from $250 million to $2 billion.

There's also talk here in Berlin that two companies -- Ericsson AB (Nasdaq: ERIC) and Huawei Technologies Co. Ltd. -- have instructed their bankers to check out the details of the proposed sale, though neither company is prepared to comment on any speculation regarding any potential move for the Nortel division.

With the topic attracting much gossip and speculation, Light Reading conducted a basic face-to-face verbal survey of carrier Ethernet industry executives to find out who they think might be interested in Nortel's optical and carrier Ethernet business.

We approached more than 50 individuals, of whom 44 provided an answer, with some providing more than one suggestion. No options were offered to respondents –- they had to come up with their suggestions themselves.

Most of our respondents took the question seriously, some less so -- hence the inclusion of Wal-Mart among the responses.

The results of this somewhat unscientific survey? Well, Huawei was, by a clear margin, the company suggested the most, a choice that, in Light Reading's view, makes sense. (See Why Huawei Should Buy Nortel's MEN .)

But other big names also received multiple votes, particularly Cisco Systems Inc. (Nasdaq: CSCO), with a number of survey respondents (all of whom were guaranteed anonymity) suggesting that the IP giant might be interested in Nortel's well regarded optical assets. (See Nortel Rolls On With 40-Gig and Nortel Intros 40 Gig, 100 Gig.)

Other suggestions made by multiple respondents include Ericsson, private equity (specifically from the Middle East), and, second only to Huawei, "no one."

Interesting suggestions that received only one or two mentions from respondents include Google (Nasdaq: GOOG), the Canadian government (a somewhat topical response!), and Infinera Corp. (Nasdaq: INFN).

Check out the full results in the table below, and, of course, we encourage any further suggestions or comments on the message board at the foot of this page.

Table 1: Who Might Buy Nortel's Metro Ethernet Networks Division?
Respondent suggestion* Number of survey respondents making this suggestion
Huawei 18
No one 9
Cisco 5
Ericsson 3
Private equity 3
Alcatel-Lucent 2
Extreme Networks 2
Fujitsu 2
Google 2
Juniper 2
ADVA (as a merger) 1
Canadian government 1
Ciena 1
Force10 1
Infinera 1
NEC 1
Nokia Siemens Networks 1
Sycamore Networks 1
Spinoff 1
Tellabs 1
Wal-Mart 1
Xtera 1
ZTE 1
* 44 respondents were asked their opinions on who might acquire Nortel's MEN division; no options were provided, all suggestions initiated by respondents.




— Ray Le Maistre, International News Editor, Light Reading

bollocks187 12/5/2012 | 3:30:48 PM
re: Huawei Seen as Likely Nortel Suitor Nortel management team and investors need to carefully way the risks associated with this move of selling off assets !

net is Nortel is still a brand name that is recognized with cusotmers. Huawei is a GOVT back communist company that brings absolutley NO vlaue to Canadians or Americans alike.

We live in a time where people are scared to ride out the storm and look for easy bailouts by selling off assets.

Just don't do it... I say. Nortel can and will come back it does not need the assistance of the chinese to do this. It needs management leadership.

Nortel made a HUGE mistake when it sold off its access gear - becuase of some stupid management decision - perhaps they need to get ride of the morons that are still political hiding in the system.



lite-brite 12/5/2012 | 3:30:55 PM
re: Huawei Seen as Likely Nortel Suitor It would HAVE to be CSCO, secure in the knowledge that if they made the wrong decision, the government would bail them out:-(
lite-brite 12/5/2012 | 3:30:55 PM
re: Huawei Seen as Likely Nortel Suitor 'Tomorrow I shall write a column that makes the same argument for Wal-Mart. We'll see what happens.'

No one would read it Phil, lol. Put Ray's name on it! (Just kidding buddy!)
Martin_444 12/5/2012 | 3:30:56 PM
re: Huawei Seen as Likely Nortel Suitor My money's on Timmy's. The lines through the drive-throughs blow away anything going on at Crappy Tire. But then, there's always RIM (don't worry, they'll make back that 25% they just dropped on the TSX -- there'll be another glitch with the iPhone and RIM will be right there to pick up the slack. Or Samsung. Or Nokia. Whatever..).
HomerJ 12/5/2012 | 3:30:59 PM
re: Huawei Seen as Likely Nortel Suitor Why has no one metioned Juniper? They and Ericsson are top of my list, from a cashflow and lack of product overlap sense. And not to mention no poisoned milk and lead paint to worry about.

abashford 12/5/2012 | 3:31:01 PM
re: Huawei Seen as Likely Nortel Suitor "All stupid answers aside, Huawei is not going to buy this unit simply because they can't afford that amount of cash. Huawei has a lot of debt and has just invested heavily in 3G, to the point that they were forced to sell off their share of H3C to finance it. Add to that the fact that Huawei actually have their own version of everything Nortel has (but they make it at somewhere around 40% of the COGS) and it doesn't make sense either."

Nice analysis... to turn this around, who do you think has the cash to do this right now? Cisco would be an obvious answer, but they don't tend to absorb organizations as big as this. Other ideas?
wangsong2233 12/5/2012 | 3:31:04 PM
re: Huawei Seen as Likely Nortel Suitor No, Phil Harvey, you are wrong.
NSN is a loser. They have already give up. They just want the torch lighting a little longer.
wangsong2233 12/5/2012 | 3:31:04 PM
re: Huawei Seen as Likely Nortel Suitor Alu is less posible. Reasons:
1) Alu is just struggling. They have to keep the cash rather than acquistion. It's hard to borrow money nowadays, you know. Swap stocks? No, No, Nortel is just cash hungry.
2) The executives are busy networking to hold their chairs.
Futhermore, PBT is not a reason for acquisition. PBT is dying, no doubt.
chook0 12/5/2012 | 3:31:05 PM
re: Huawei Seen as Likely Nortel Suitor All stupid answers aside, Huawei is not going to buy this unit simply because they can't afford that amount of cash. Huawei has a lot of debt and has just invested heavily in 3G, to the point that they were forced to sell off their share of H3C to finance it. Add to that the fact that Huawei actually have their own version of everything Nortel has (but they make it at somewhere around 40% of the COGS) and it doesn't make sense either.

BTW they haven't copied a product in over 10 years. In fact these days they have a differentiated product strategy (optimise for lowest cost) which plays better than North American products in their focus markets. The longer it takes stupid yanks to wake up and smell the coffee, the more likely there will be *no* full-spectrum telecoms vendor left in North America by 2012.

Copying architectures is another matter. But then that is a sensible and legitimate strategy for a company that does not aim to be on the bleeding edge of technology.

--chook
ozzman 12/5/2012 | 3:31:05 PM
re: Huawei Seen as Likely Nortel Suitor Huawei is too busy copying other companies ideas.

It will certainly not invest in a division that comes up with new technologies like 40G, 100G transport, PBB, PBB-TE and Provider Link State Bridging!
douaibei 12/5/2012 | 3:31:05 PM
re: Huawei Seen as Likely Nortel Suitor Huawei will not buy this nortel trouble maker. huawei tend to develop everything itself, Nortel is not good target for huawei. Huawei do need a presence in north america. however, huawei need an organization who can help on marketing and sales rather than technology or product.

the nortel MEN stuff looks to be useless for huawei cause nortel spend most of it's RD in North america and there are more than 1000 employee to be included in the deal which is too many for huawei.

Huawei would like to buy a service operation rather than a product or technology unit.
K28.5 12/5/2012 | 3:31:06 PM
re: Huawei Seen as Likely Nortel Suitor ALU is in too deep trouble to swallow a fish this size. Moreover, they have the 7450 that gives them L2 aggregation. Buying the lot only for the optical technology? I doubt it.

NSN, following their Atrica acquisition, seems headed in another direction than Nortel's PBB/PBB-TE path.

Huawei, in my opinion, won't gain a significant market share as a result of taking the MEN, nor do they need most of the technology.

I would have been in favor of private equity, but given the financial sector state, I doubt that NT will sell at a price one of these will be willing to pay.

So, IGÇÖm left with no-one, although I canGÇÖt imagine NT management making this announcement without closing a deal in advance.
my2cents4free 12/5/2012 | 3:31:06 PM
re: Huawei Seen as Likely Nortel Suitor think GE Capital
DCITDave 12/5/2012 | 3:31:06 PM
re: Huawei Seen as Likely Nortel Suitor Alu's not a bad pick, but they're still working through acquisition integration issues. NSN seems more likely if Huawei doesn't step up.
sgamble 12/5/2012 | 3:31:07 PM
re: Huawei Seen as Likely Nortel Suitor Nobody mentioned Canadian Tire or Tim Horton's?
macster 12/5/2012 | 3:31:09 PM
re: Huawei Seen as Likely Nortel Suitor macster,

you forgot option 3: To eliminate the competitor.

Option 4: To kill a technology!

-------------------------------------------------


Thanks guys! The above and say, political aspects, e.g. having to buy a company to win business (WWP comes to mind) falls under "market share".

Filling a portfolio gap or simply buying into a technology space comes under "technology". The one bit that does not fit is private equity - think ECI, GEO, Aeroflex, etc.

Oddly enough, I actually think ALU is a good fit as the MEN division (Layer 2) complements well their IP business (Timetra). Not sure what happened to Riverstone. Though the optical part of MEN could be seen to be additional overlap to that of Lucent's and Alcatel's, I'm sure it can be integrated with the good points put to use.

Let's see. ALU get market share. They get Nortel's 40G/100G technology (the QPSK improvement to On-Off Keying), they eliminate a competitor, and can kill the technology if they want to! LOL
basselk 12/5/2012 | 3:31:09 PM
re: Huawei Seen as Likely Nortel Suitor Option 4: To kill a technology!
DCITDave 12/5/2012 | 3:31:09 PM
re: Huawei Seen as Likely Nortel Suitor Tomorrow I shall write a column that makes the same argument for Wal-Mart. We'll see what happens.
t.bogataj 12/5/2012 | 3:31:10 PM
re: Huawei Seen as Likely Nortel Suitor It is so clear, yet nobody sees it!

** Was it not Ray Le Maistre that speculated on LR why Huawei should buy MEN?
** Is it not the LR that has the biggest impact?
** Did not, then, all respondents read Ray's blog?

No wonder most of respondents choose Huawei. (All other answers being wishful thinking...)

Tata,
T.
t.bogataj 12/5/2012 | 3:31:10 PM
re: Huawei Seen as Likely Nortel Suitor macster,

you forgot option 3: To eliminate the competitor.
macster 12/5/2012 | 3:31:13 PM
re: Huawei Seen as Likely Nortel Suitor Why would one buy a company?
1). Market share
2). Technology
(any other 'real' reasons?)

With this in mind, we have a clearer picture of whom the buyers might be.
HomerJ 12/5/2012 | 3:31:13 PM
re: Huawei Seen as Likely Nortel Suitor Please, I don't want tainted yogurt and lead in my interwebs. My series of tubes is already clogged with Russian spam as it is.
DCITDave 12/5/2012 | 4:14:22 PM
re: Huawei Seen as Likely Nortel Suitor For the link:
http://www.forbes.com/2009/01/...
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