Wither Nortel?

By now, we are all aware of Nortel (News - Alert)’s carrier revenue being down 24 percent, its 4.5 billion dollar debt and the bankruptcy exploration first reported by the Wall Street Journal.

However, recently I spoke with Richard Lowe, Nortel’s President of Carrier Networks, who did an admirable job addressing my questions. Lowe seems to be a great spokesman for the company. (Also on the line was Bruce Gustafson, Director of Marcom, Carrier Networks.)

Lowe volunteered press commentary about how telecom is seeing earnings estimates cut anywhere from 5-12 percent, adding, “Next year promises to be a tough CAPEX year for service providers and we’re feeling our way right now in terms of what that business forecast is going to look like… We are trying to keep our head down and tail up here and focus on what we can control and not overreact to what comes out in the trade press or newspapers. But clearly some of our investors are anxious and some of our customers want reassurance that Nortel is still a viable entity.”

He explained that his division is actually a large and profitable part of Nortel. “If you look at our results at the end of the third quarter and year to date, the business runs in the high teens operating margin, he said. Nortel is number two in CDMA globally and although he says Nortel has a smaller share of the GSM market, his company services 8 of the top 10 mobile operators.”

Lowe recently visited China, landing a contract with China Telecom to extend its CDMA network. Then, in Japan, he spoke with KDDI (News - Alert), winning a 4G core contract in partnership with Hitachi and beating out formidable competitors. He says this is proof of how good the company’s technology is.

When asked bout rumors that Nortel could split up, Lowe’s response was that the company has been transparent in their consideration to divest their Metro Ethernet Networks (MEN) business. Nortel recently restructured and carved out a billion and a half dollars of cost. But clearly the economic situation has pushed them to consider divesting other assets that could be sold off if the company gets the right price. He added, “Our customers want assurances that we are going to continue to service their networks and we’re going to continue to develop the technology they need and I have provided those assurances to my large customers like Verizon (News - Alert) and I have every intention of continuing to service their needs and honor the contractual obligations I have with them.”

Lowe says Nortel will continue its focus on wireless technologies, partnering in LTE (News - Alert) and 4G because it would be very expensive to invest in those areas on their own. (Nortel has moved funds from its in-house R&D WiMAX to develop more advanced LTE-based solutions. WiMAX (News - Alert) R&D will now be handled by Nortel’s Joint Venture for WiMAX with Israel’s Alvarion.) We know that LTE and 4G are the future and these should be immensely profitable businesses for Norel.

Lowe also believes in continued carrier VoIP growth — whether it be trunking, Class5 replacement or unified communications where they’re applying enterprise business principles to carrier-hosted solutions. Indeed, he said that enterprise and carrier platforms are very similar and will be converging over time.

Furthermore, there are opportunities in applications such as FMC and network enablement. Lowe thinks these markets will take off and Nortel is in a position to take advantage of this growth. Nortel is also doing pioneering work in the “virtual worlds” area.

When I discuss Nortel’s problems with my many talented friends there, they mention “cultural issues” that keep the company from doing better. Let’s hope these issues get dealt with rapidly as at this point it seems something huge has to change to allow the company to remain a viable, successful and standalone communications player. IT

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