Nortel had little choice but to liquidate, analysts say

Sale of wireless business for $US650M seen setting stage for end of an era

In light of the overall economy and Nortel's particular situation, the former telecom giant had little choice but to liquidate its assets as it attempts to restructure under Chapter 11, analysts say.

Nortel this week said it will sell its CDMA and LTE wireless business to Nokia Siemens Networks for $US650 million. Nortel also said it is seeking buyers for the rest of the company's operations - enterprise, optical and Metro Ethernet among them.Nortel is also delisting its shares from the Toronto Stock Exchange. In essence, the company, after 100-plus years as Canada's foremost telecommunications equipment manufacturer and at one time valued at over $US200 billion, is exiting the arena.

"The global financial crisis and recession compounded our challenges and impacted our ability to complete our transformation," Nortel CEO Mike Zafirovski told the Canadian parliamentary finance commission last week, according to The Wall Street Journal.

Analysts say Nortel had no choice but to follow this course.

"Nortel's plan to sell all of its divisions, including enterprise, is the right one," says Steve Schuchart of Current Analysis. "It's been proven to this point that Nortel, as it is, cannot continue. The overall economy and Nortel's performance over the last several years" forced them to liquidate assets.

"A declining economy, coupled with the fact that put a couple of business units up for sale that didn't get bought ... the company's in a situation now where its viability is in question," says Zeus Kerravala of the Yankee Group. "I'm not sure they had other choices."

Enterprise users are waiting for that shoe to drop, says Victor Bohnert, executive director of the International Nortel Network User Association (INNUA).

"We are glad to see Nortel formalizing some of the plans for its business units," Bohnert said. "Earlier this month at INNUA's Global Connect 2009, Zafirovski told our members that Nortel was seeking potential buyers for its business units, this move clearly indicates the implementation of that strategy.

"We continue to wait for news on the enterprise business specifically- and we expect that that news will be coming soon," Bohnert said. "Our 4,000-plus members rely on Nortel solutions daily to drive their businesses forward - the important thing for them is that the technology survives. This recent move may signal the beginning of the end for Nortel as it exists today. Once a direction is specified for enterprise, we will work with all parties to help guide our members through the transition."

Schuchart advises customers who had planned to purchase Nortel gear in the current budget year to go ahead with those purchases.

"If you've got a Nortel network and you've got budget on the books to buy Nortel equipment over the next couple of months, go ahead and do that," Schuchart says. "Any plans beyond the immediate budget year need to be reviewed."

But others might want to wait to see which company, if any, buys the Nortel enterprise business, Kerravala says.

"Whether it's good or not for the customers depends on who acquires them," Kerravala says. A company with little overlap might invest in the product line and keep it viable, he says; a company with a significant amount of overlap might just be acquiring the customer base and planning to migrate it to its own products.

"Any investment you made over the last couple of years is gone," Kerravala says. "It is a crapshoot as to what remains and what doesn't, post-acquisition."

Avaya and Siemens Enterprise Communications have reportedly shown interest in Nortel's enterprise assets.

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