Nortel Shrinks Again

By the skin of its teeth, Nortel Networks Ltd. made its November 16 deadline for reporting its third-quarter financials, issuing its announcement late Monday. And no wonder it was delayed: To say the news release is complex wouldn't do it justice. (See a large chunk of it: Nortel Reports Q3.)

The bankrupt Canadian vendor reported revenues of $1.05 billion, though that didn't include revenues from its EMEA operations (for particular accounting reasons) or its "discontinued operations" -- the Enterprise Solutions (ES), Nortel Government Solutions (NGS), and DiamondWare businesses – which have been acquired by Avaya Inc. (See Avaya's $900M Bid Wins Nortel Auction.)

The net loss for the quarter, including one-time charges, totaled $508 million.

Behind the thick fog of accounting methodologies, though, one thing is clear: Nortel's business is shrinking -- by nearly 25 percent compared with a year ago, in fact.

That calculation comes from a comparison of Nortel's "Segment Revenues," as shown in the table below:

Table 1: Nortel Segment Revenues, Q3 2009
In millions of dollars Q3 2008 Q3 2009 Year-on-Year change
Wireless Networks $805 $663 -18%
Carrier VoIP and Application Solutions $182 $208 +14%
Metro Ethernet Networks $398 $295 -26%
LG Nortel (joint venture) $211 $103 -51%
Other $(1) $2 +150%
Total Segment Revenues $1,595 $1,271 -20%
Discontinued Operations $724 $475 -34%
Overall Total $2,319 $1,746 24.7%
Source: Nortel

There are a few things worth noting about the numbers. First, the Wireless Networks segment still includes the CDMA business that's been sold to Ericsson AB (Nasdaq: ERIC). The good news for the Swedes is that Nortel says CDMA system sales are about level with a year ago, while revenues from the GSM and UMTS units, which are still without a named buyer, experienced "declines." (See Ericsson Completes Nortel Asset Buy and Ericsson: Why We Want Nortel's Wireless.)

"Discontinued Operations" represents the businesses acquired by Avaya, so the bad news for that company is that revenues are down 34 percent from a year ago.

And then there's the Metro Ethernet Networks segment, which was due to go under the hammer last week. That auction was delayed, and any new bids, to go alongside the opening gambit from Ciena Corp. (NYSE: CIEN), are due in today, with the auction now expected to take place within the next week. (See Nortel Postpones Optical Auction and ITU: Ciena Bids $521M for Nortel's MEN.)

That business line has also suffered, with revenues, at $295 million, down 26 percent from the same period last year. Nortel said the decline was due in part to "lower revenues from certain customers," which is, quite frankly, what you'd expect for a bankrupt supplier in a capex-constrained market.

The only bright spot was Nortel's Carrier VoIP and Application Solutions segment, which recorded a 14 percent increase in revenues to $208 million. Nortel said this was due to "contract deliveries and project completions" during the quarter, which suggests that growth may not be sustainable.

— Ray Le Maistre, International News Editor, Light Reading

HomerJ 12/5/2012 | 3:52:29 PM
re: Nortel Shrinks Again Nice recap of the press release. Now tell me something I can't read in the pr. Like say, the Q/Q decline. And specifically for the optical portion how does the Y/Y and Q/Q decline compare to their competitors? Are they doing badly because they are bankrupt or is the market as a whole down? or both? Perhaps they are declining less than others? The problem is, all you do is rag on Nortel and repeat stuff I can find in the pr. How's about some analysis?
digits 12/5/2012 | 3:52:28 PM
re: Nortel Shrinks Again Well, you're a smarter guy than me if you could figure out that news release easily.

You have a point, of course, and I should have noted that Nortel's optical division appears to be performing worse than its peers. Though in most instances it's hard to say, because most of the other large vendors with optical assets don't break out their optical revenues for the media, and Huawei says it's growing everywhere, all hte time... :-)

As a comparison, Alcatel-Lucent's optical division's revenues were down 11.5% year on year in Q3, while Ciena, in its most recent quarter, saw its 'optical service delivery' revenues dip 41% year-on-year.

But while Ciena isn't bankrupt, it has its own individual issues, esp regarding concentration of optical customers. So we can compare apples against pears, but I'm not sure that gives us much.

For what it's worth, Q-on-Q, the MEN revenues were down -- Q2 revenues were $333 million.

The analysis? Nortel is bankrupt and selling itself in the telecom equipment industry equivalent of a sidewalk/car boot sale. And that makes buyers cautious, because they don't know what's going to happen to the business.

Point taken, though.

What will be interesting, of course, is to see what happens in the MEN auction. And here's some analysis - if MEN gets acquired by Ericsson or Nokia Siemens, you'll not get ay insight into what happens, because those companies give nothing away about how individual lines of business are doing unoless it's wireless and doing really well.

Sterling Perrin 12/5/2012 | 3:52:28 PM
re: Nortel Shrinks Again

Nortel MEN is declining faster than the overall market because customers won't do new business with a supplier whose future is completely up in the air. I don't think the decline in NT MEN revenue at this point is especially meaningful. If customers are comfortable with where NT MEN lands, its business will very likely bump up as new orders resume. If customers don't like the buyer, the decline will continue and accelerate. There's just not a lot that can be read into the past quarter, given the looming auction deadline.


Sign In