There comes a time when, like people, a company is so burdened with its past that crafting a better future begins with starting over. In Nortel’s case, that means making good on recent rumors and selling its three major divisions – wireless, enterprise and metro Ethernet – to rivals. Such a move would accomplish two aims: it would create better shareholder value but, more importantly, a breakup would grant the entire telecom equipment industry a much-needed do-over – financially and operationally. The ratio of equipment makers to operator customers is too high – meaning, it’s past time to consolidate. And it seems Nortel is considering doing just that.
In mid-March, talk emerged of a private equity group buying Motorola’s handset business and Nortel’s wireless division and merging the two. The thought intrigues but also raises eyebrows. If two wrongs don’t make a right, how can two perpetual losers make a profit? One has to look past the companies’ finances and to their respective capabilities and R&D to get the answer to that question.
The wireless unit actually generates the most cash of any Nortel division, even though Nortel continues to lose billions of dollars each quarter. Meanwhile, Motorola’s handset unit is making the fewest sales in the company but it still has a decent R&D division. Thus, bolstered by a multibillion-dollar fund, a combined Motorola-Nortel (Mortel? Mototel?) would have the backing and breathing space needed to get back on top of the wireless world – remember the RAZR glory days?
(And what an awkward discussion that must be for Nortel President and CEO Mike Zafirovski. Zafirovski ran Motorola until he moved to Nortel in late 2005; Motorola subsequently sued for breach of confidentiality. Uncomfortable much?)
With the wireless business out of the way, Nortel would be left with its metro Ethernet and enterprise units.
The company did put Metro Ethernet Networks (MEN) on the block for a few months hoping to make enough cash to stave off bankruptcy. That didn’t happen and Nortel recently withdrew plans to sell MEN, presumably because the offers it did get were too low. But now rumors are swirling that Ciena Corp. wants to buy MEN and that the deal will materialize any day.