Impact of Chapter 11 filing will be limited
Nortel's filing for bankruptcy protection may have little impact on the European mobile industry, according to experts.
The company's presence in the European mobile network space was fairly limited, given that it sold its 3G interests to Alcatel-Lucent years ago, and was concentrating on generating more success with LTE. But even there it showed little signs of success, despite attempts, and many have suggested that business too may follow the UMTS and WiMax RAN businesses by being divested.
Dana Cooperson and Matt Walker, analysts at Ovum, said, "Nortel is working hard to develop a strong LTE/SAE ecosystem including LG Electronics, LG Nortel, and other partners. It is doing its best to demonstrate its capabilities through trials (e.g. Verizon and T-Mobile Germany) and announcements (e.g. a deal with KDDI) and expects some commercial launches in 2009. Its LTE assets (part of the Carrier division) may be attractive for another player, perhaps Alcatel-Lucent, NEC, or ZTE."
"It's not surprising that Nortel filed for bankruptcy protection," acoording to senior analyst at ABI Research Nadine Manjaro.
"The company has not been doing well for several quarters due to declining CDMA business which was one of the company's primary business segments. In addition, North America is the company's largest market and most of the major operators in this market (Sprint Nextel, Verizon Wireless, Telus, Bell Mobility, Alltel, Leap) have already deployed their third generation mobile networks and have been planning migration to non-CDMA 4G networks such as LTE and WiMAX. Nortel is not a strong vendor in either technology due to the wavering direction of its next generation infrastructure strategy.
"Nortel was suffering losses while the rest of the industry was solid and predictable. The firm began a transformative path aimed at improving its cost structure, operations, leadership, and overall earnings. Its strategy is to regain relevance by transforming its enterprise business, focusing on next generation mobility, convergence, and services. Nortel plans to shift its portfolio to growth areas such as enterprise solutions (expected to grow 12% annually through 2011), and Core/Multimedia applications, (which are expected to grow by 8% annually during the same period). But perhaps its decision to shift focus came a little bit too late."
So what does Nortel's filing mean for other vendors. Analysing the overall picture, Dr. Karim Taga, partner at Arthur D. Little and head of the Technology Economics Competence Center, said that Nortel and Motorola are classed as "followers" by many operator CTOs.
The big four would continue to dominate, and the influence of players such as Cisco would continue to disrupt. In other words, sad though it is to see an industry name such as Nortel in such trouble, it had relatively little left to say to mobile operators, outside of mobile backhaul, another area that is brutally competitive.
Not that Nortel’s Board can admit defeat, of course. It’s statement said:
“The Company commenced a process to turn around and transform Nortel in late 2005, and the Company made important progress on a number of fronts. However, the global financial crisis and recession have compounded Nortel's financial challenges and directly impacted its ability to complete this transformation. Nortel is taking this action now, with a $2.4 billion cash position, to preserve its liquidity and fund operations during the restructuring process.
"Nortel must be put on a sound financial footing once and for all," said Nortel President and CEO Mike Zafirovski. "These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be. I am confident that the actions we're announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel's dedication to delivering world-class solutions and services to customers."