Baby Nortels face uncertain future

Nortel Network Corp.’s sell-off of front-office solutions provider Clarify will be followed by a clearance sale in the coming months as the telecommunications giant restricts its focus to optical networking and wireless, analysts say.

“”It’s

become quite clear the company is going to want to shed assets that aren’t key,”” said Mark Quigley, director of research for the Yankee Group Canada.

“”What they’re going to hold on to is what they said and anything not on that list is potentially on the block,”” added Elroy Jopling, a telecommunications analyst with Gartner Group Canada.

In announcing the Clarify sale Tuesday, Brampton, Ont.-based Nortel suggested the company would continue streamlining its business, saying the sale was part of the Nortel’s plan to shed non-core holdings. Also on Tuesday, Nortel announced 19,500 layoffs and named chief financial officer Frank Dunn as CEO John Roth’s successor.

Dunn will take the reins Nov. 1. Analysts said the downturn in the communications sector that has pushed Nortel to cut 45,000 jobs this year coupled with the appointment of a CFO to Nortel’s top job will mean an added emphasis on shedding non-essential divisions.

On Wednesday, Nortel announced it was handing off most of its manufacturing relating to systems integration, configuration, and testing of DMS circuit-switching products to C-MAC Industries Inc. of Montreal.

Norm Bogen, director of WAN infrastructure and services for Cahners In-Stat Group in Scottsdale, Ariz., expressed confidence in Nortel retaining its interests in asynchronous transfer mode and frame relay switches and voice over IP (VoIP) gateways, but said he was uncertain about anything outside those areas.

Nortel needs to rid itself of unprofitable businesses, he said. “”And I’ll bet you a lot of them aren’t profitable.””

Jopling said beyond wireless, fibre optics and metro area networks, anything is up for grabs, including VoIP.

Nortel went on an acquisition spree in 1999 and 2000 and a number of those buys could soon be out the door, including EPiCON Inc., a maker of software that enables application service providers to deploy software to thousands of desktops and manage it from central server. Also, Dimension Enterprises Inc., a business strategy consulting firm Nortel acquired in Feb. 2000 would not figure prominently in Nortel’s plan to slim down.

Sonoma Systems, a provider of high-speed video, data and voice over a single connection that Nortel acquired in Aug. 2000, and Architel Systems Corp., a maker of software for Internet service providers might also be on the block.

“”Architel is interesting,”” Quigley said. “”While it may not seem to be key, having the ability to offer the hardware solution and the provisioning tools behind it,”” would be valuable.

Nortel supplied common shares valued at US$395 million for Architel and others priced at US$540 million for Sonoma. If the sale of Clarify is any indication, Nortel would get much less in return. Nortel paid US$2.1 billion in stock for Clarity and received US$200 million from Tuesday’s sale.

“”The big guys like Nortel were scrambling during the go-go years of ’98 and ’99 and 2000 to buy everything in sight that they weren’t themselves developing,”” Bogen said. “”At the time they felt that things were going to continue to go up and they thought they needed to be in these markets if they were going to be a leader.””

However, Bogen said Nortel’s divestitures are not the extreme fire-sale they appear to be. When Nortel bought Clarify, its stock hovered around the $80 range. It now sits at under $9.

“”Maybe they made out (well) in some respects,”” Bogen said.

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