Nortel Sells UMTS Unit

Update: Nortel has agreed to sell its UMTS unit to – surprise, surprise – Alcatel for $320-million. Here’s a quote from CEO Mike Zafirovski: "Nortel is sharpening its focus on the markets in which we intend to lead. Our UMTS access business lacks the scale and momentum needed to become profitable." That’s an understatment given the UMTS business was losing an estimated $200-million a year on sales of $400-million to $500-million. Nortel held a conference call earlier today to provide an "update on advances to the execution of its business plan". It featured Zafirovski and Richard Lowe, president of mobility and converged core networks. At first glance, the selling price seems lower than the $500-million expected by many analysts. However, Nomura analyst Richard Windsor told Reuters that Nortel got a "reasonable price". Desjardins Securities analyst Paul Howbold said "while we are not surprised that Nortel has sold its UMTS business given the very difficult pricing environment, it raises serious questions about the company’s GSM business given the declining spending levels in developed markets and the lack of success in emerging markets (eg India). We also believe that without a footprint in UMTS, it is likely to complicate Nortel’s possible entry into 4G as it will not be the best positioned to transition carriers from UMTS to 4G."
Other views: Wireless Utopia says when the acquisition is completed, Alcatel will have 16% of the UMTS wireless network infrastructure market, trailing Ericsson, which has 30%. Mark Goldberg suggests with Nortel’s rivals getting bigger through consolidation, the company "will have to work harder to keep itself top of mind for its customers to call". GigaOm says he likes Mike Z.’s say-it-like-it-is approach – a common view among people who have heard Mike Z. give presentations.

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4 Responses to “Nortel Sells UMTS Unit”

  1. Godzilla Says:

    the price is peanuts, but it plugs a large cash drain

    Again, it’s a great deal for Alcatel. The price represents less than annual R&D spending, and probably also less than the exit price from the Evolium partnership (?). Look forward for Evolium to be put on life support and discontinued in a year or so.

    Alcatel gets a darn good working product to replace Evolium which was problematic and cost ineffective. It gets to increase the scale of the Nortel product by placing it in Alcatel accounts thereby increasing costs efficiencies and widening margins. It gets a foothod at several Nortel accounts where it gets to peddle the rest of its portfolio, thereby resulting in an increased top line in other products as well. Great deal for Alcatel.

    For Nortel, they get out of a money losing business. They effectively lose several accounts including Orange and Vodafone. The other products they may be selling there will get marginalized. The price is a pittance next to the BILLIONS of dollars invested in that business, but I guess a CEO has got to do what a CEO has got to do.

    Overall Nortel’s margins have to increase substantially, as they are left in wireless with two profitable businesses, CDMA and GSM.

    What happens now to GSM? GSM will go even more into cash cow mode. They will milk the installed base. New accounts will come from GSM-R, which is a niche if there was any, and that’s it.

  2. Rajiv Says:

    GSM and GPRS is not being sold off according to the press release. Only the UMTS business. This has to do with the slow 3G uptake in Eurpoe I suppose.

  3. Baron Says:

    Sell sell sell, shrink shrink shrink, are they making ANY money yet?

  4. whatisthefuss Says:

    the news – Nortel is selling the Radio Access Unit.

    Alcatel French is not good at working on products and integration

    do not worry – Alcatel is buying another weak group from Nortel
    just like Alcatel bought Lucent for this reason: the government group and Lucent CEO Pat Russo got promoted to CEO of combined Alcatel-Lucent merger.

    before this, Alcatel bought Spatial Wireless and cannot find the directions and teams to grow the group.

    remember this – Alcatel got the big money to borrow and to spend from the French government.

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