The agreement does not include Nortel’s UMTS circuit or packet-switch core access products but its radio network controller and Node B products, related services and associated assets.
Most 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 had some great success and some great customers, it lacks scale and momentum to be profitable on our own,” Zafirovski said in a conference call with financial analysts. “We did not see a way to have any reasonable returns in the short period.”
He 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.”
Toronto-based Seaboard Group analyst Brian Sharwood said Nortel’s sell-off comes at a time when the company has been forced to re-examine its priorities.
“I think Nortel likes to be on the leading edge, and UMTS is current, as opposed to future (technology),” he said.
No clear vision
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 Input, 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 timeframe, Zafirovski said, 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 it’s going in enterprise. It just seems to be kind of fading in the market,” he said. “It’s a different business. That’s an area that certainly I would like clarification on what it’s going to do.”
In July, Nortel announced a partnership with Microsoft centred around unified messaging, which would be one area it offers products and services to the enterprise.