Nortel Asset Sale Punctuates End of Era

Nortel Networks has agreed to sell its two advanced wireless technology business units to Nokia Siemens for US$650 million. The companies hope to close the sale by Q3 of this year.

It is an ignominious end for the telco, which at one time was one of the dominant players in the global marketplace. In January, however, the Toronto-based company filed for Chapter 11 bankruptcy and is now in the process of selling off its various business units. It is also in the process of delisting from the Toronto Stock Exchange.

Specifically, Nokia Siemens is going to buy Nortel’s CDMA and LTE divisions. They provide infrastructure for wireless carriers such as Verizon Wireless, and are viewed as among the more valuable business units, employing some 2,500 people. In fact the CDMA unit is the second-largest supplier of this infrastructure in the global market.

Indeed, Nortel President and CEO Mike Zafirovski emphasized that the assets carry clear value despite the consolidation in the telecom industry.

Industry Woes

The fact that Nortel found a buyer — and at this particular price point — is indeed noteworthy, Scott Testa, a professor of marketing at St. Joseph’s University, told the E-Commerce Times.

“It is a crowded space right now that has been undergoing a severe consolidation for a while. So yes, the value is there, I would agree with that.”

Still, Testa couldn’t help but note “how low the mighty have fallen.”

Unfortunately for Nortel, its brand was unable to survive the decline of the telecom industry, which has been struggling to right itself ever since the dot-com implosion early this decade.

Yet “even the most desiccated corpse can make compost,” Charles King, principal with Pund-IT, told the E-Commerce Times.

The telecom industry has undergone a fundamental shift that has cannibalized most of the leading vendors over the past 10 years. The Internet is to blame, of course, with its commodization of once-premier telecom services such as VoIP and Web casting.

Traditional landline revenues, at the same time, are just a shadow of what they were a decade ago. “Nortel is a company that, in the end, just fell behind the evolution curve of its industry,” King concluded.

Dot-Com Fallout

To be sure, the current recession also played a role in the company’s demise, providing the proverbial last straw — not only for Nortel, but also for other erstwhile high flyers. Silicon Graphics, or SGI, sold off its assets to Rackable Systems for $25 million earlier this year. It too recently filed for Chapter 11 bankruptcy — for the second time.

Oracle acquired Sun Microsystems for $7.4 billion just as the company was turning in its worst quarterly performance in six years.

Perhaps the most dramatic example of all is AOL, which was unceremoniously spun off from Time Warner — an inauspicious end to the $147 billion merger that rocked the tech and media worlds in 2001.

In retrospect, none of these companies would likely have achieved the heights they did without the inflationary — and unsustainable — demand of the dot-com era, said King. “This was not a case of Icarus flying too close to the Sun; I don’t think any of these guys should have been airborne in the first place.”

Nortel filed for Chapter 11 on January 14 — the day before it was to repay a $107 million interest debt on bonds.

The company cited a sharp drop in orders from phone company clients as one of the reasons for its troubles in its Q3 earnings report; that quarter it lost $3.4 billion as revenue dropped 14 percent.

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