Nortel sheds UMTS business for US$320 million

Nortel on Friday said the US$320 million sale of its universal mobile telecommunications systems business to Alcatel will allow it offload an unprofitable business and refocus on mobile and enterprise opportunities.

The agreement does not include Nortel’s UMTS circuit or packet-switch core access products but its radio network controller and Node B products and OAM solutions, related services and associated assets. Most of the employees focused on these product lines will transfer to Alcatel, the companies said. The transaction is expected to be completed by the end of the year.

Nortel chief executive Mike Zafirovski said the UMTS business represents less than 10 per cent of Nortel’s total revenues, and that the business was operating at a loss. Part of Nortel’s attempt to transform itself back into a profitable business is to divest itself of assets in which it has no leadership, he said.

“There are too many players in this area, and while we’ve some great success and some great customers, it lacks scale and momentum to be profitable on our own,” he said in a conference call with financial analysts. “We did not see a way to have any reasonable returns in the short period.”

Zafirovski said the accounting irregularities that tarnished Nortel’s image, battered its stock price and led to several rounds of executive departures had “put a question mark” around its investments in UMTS,  but that wasn’t the only problem.

“We did not have the ecosystem with suppliers and partners to have end to end solutions, specifically devices,” he said.

Toronto-based Seaboard Group analyst Brian Sharwood said Nortel’s sell-off comes at a time when the company has been forced to reexamine its priorities.

“He’s in the role of restructuring the company,” he said. “I think Nortel likes to be on the leading edge, and UMTS is current, as opposed to future (technology).”

Richard Lowe, Nortel’s president of mobility and converged core networks, said the company would continue to invest in global system for mobile communications (GSM) and orthogonal frequency division multiplexing (OFDM). The latter is a way of modulating data streams in communications that is supposed to simplify the design of transmitters and receivers while using spectrum more effectively. Nortel is specializing in OFDM based on Mobile Imput, Mobile Output (MIMO) and already has 70 OFDM patents, Zafirovski said.

Nortel doesn’t expect these areas to achieve meaningful profitability in the 2007-2008 ttimeframe, Zafirovski added, but it would look to its business in optical networking, mesh and enterprise to shore up revenues. Sharwood, however, wasn’t so convinced.

“I haven’t seen any clear vision about where they’re going in enterprise. They just seem to be king of fading in the market,” he said. “It’s a different business. That’s an area that certainly I would like clarification on what they’re going to do.”

Last month, Nortel announced a partnership with Microsoft centred around unified messaging, which would be one area it offers products and services to the enterprise. Zafirovski referred to the Microsoft agreement several times on Friday as an indication of the company’s future direction.

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