The Heavies Weigh In on Nortel
Nortel's execs could also make some moves in its wireless business, too, and, taken together, all this reshuffling is bound to change the face of Nortel as we know it. (See Nortel 4G Plans Up in the Air, Nortel Plunges on New Forecast, and What's Nortel Worth?)
So we chased down an analyst in each major equipment area for some perspective on what Nortel's doing -- and what it might do next.
Carrier Ethernet Equipment
"I am not in a position to second-guess Nortel’s decision to divest its carrier Ethernet business when you think about trying to grow profit margins in such a competitive environment," says Stan Hubbard, Heavy Reading's top Ethernet analyst.
"I am just surprised that we didn't hear more news about what is going to happen to the metro Ethernet group because competitors now have the opportunity to argue that this business has entered a state of limbo," adds Hubbard.
Then there's the matter of who'd buy Nortel's carrier Ethernet business, which is an issue for another article. Or several.
Hubbard estimates that Nortel had a 3 percent share of a $533 million Carrier Ethernet Switch and Router (CESR) market for the quarter ending in June. The CESR market is likely to be about $2.1 billion in 2008, compared to $1.9 billion in 2007. So it's a growing area, but also very competitive, with 21 equipment vendors in the space, he notes.
Optical Networking Equipment
"I am shocked by this announcement from Nortel," says Heavy Reading's Sterling Perrin. "Given Nortel’s history and contributions to optical networking, they are in many ways selling the core business of Nortel. This has got to be incredibly difficult for the many long-time Nortel optical employees who have stuck with the company through tremendous upheaval."
Perrin says Nortel's Metro Ethernet Networking (MEN) business, which houses the carrier Ethernet and optical equipment, only contributed about 13 percent of the company's revenues through the first half of 2008, so "its contribution within the company clearly has diminished through the years."
He adds that Nortel has some optical networking pieces that others would want, such as 40G/100G, but "it’s hard to imagine that’s a reason to buy the whole division."
As our reporting has already noted, Nortel is indeed up in the air on 4G. Heavy Reading's senior wireless analyst, Patrick Donegan, says Nortel's legacy wireless position overall is "poor."
He notes that the company's market share of GSM equipment is low, and while the company does have a sizable CDMA market share, that market is in decline.
"The big hope for Nortel in the LTE equipment market is Verizon, where [the vendor] already has an installed base of CDMA," says Donegan.
But he adds that Nortel ought to consider finding an OEM partner for LTE equipment, much as it did for WiMax. "Whether it can go beyond that and carve out a position in LTE which is actually profitable with an OEM partner is unclear, but certainly plausible,” he says.
Now, some good news. An area where Nortel may not be losing momentum, according to Heavy Reading analyst Jim Hodges, is in the VOIP equipment space.
"I believe the business, technology, and market fundamentals for Nortel in the VOIP and application server market remain solid," Hodges says. "The key question is, will Nortel maintain necessary R&D levels to hold market position and deliver more multimedia-centric hosted applications?"
It's a fair question, adds Heavy Reading chief analyst Graham Finnie, who is working on a report on carrier policy management and deep packet inspection. Nortel, Finnie notes, is strong in VOIP, but not perceived to be as "well versed" in other service and application areas.
— Phil Harvey, Editor, Light Reading