Tuesday, September 16, 2008

Nortel Cuts Outlook, Seeks Buyer for Metro Ethernet Division

Citing "significant pressure as Carrier customers cut back their capital expenditures" during the expanding economic downturn,
Nortel cut its financial outlook for the quarter ending September 30, 2008 and trimmed its full year 2008 outlook. In particular, Nortel said certain Enterprise and Metro Ethernet customers were deferring new IT and optical investments. As well, since reporting second quarter 2008 results, the company is seeing additional pressure on revenue due to foreign exchange impact and certain product delivery delays from the third quarter into the fourth quarter.

Nortel now expects Q3 revenues to be about $2.3 billion. Third quarter gross margin is currently expected to be approximately 39 percent of revenue primarily as a result of a product delivery delay into the fourth quarter and customer mix within the Carrier business.

Nortel revised downwards its full year 2008 outlook , saying it currently expects revenue to decline between two and four percent compared to 2007. Gross Margin for all of 2008 is expected to be approximately 42 percent of revenue.

The company is planning further restructuring and other cost reduction initiatives to significantly reduce its cost base to achieve a more competitive business structure as well as to mitigate the risks associated with the company's 4th generation carrier wireless investments.

Nortel also announced its intention to sell its Metro Ethernet Networks (MEN) business, which includes optical and Carrier Ethernet portfolios. The business has a strong customer base, and leading edge technology in areas such as 40G/100G optical networking.

"It is clear that the business environment in which we operate requires additional immediate and decisive actions," said Nortel President and Chief Executive Officer Mike Zafirovski. "A comprehensive review of our business is taking place and we are determined to reshape the Company to maximize its competitiveness, drive a significant increase in effectiveness and efficiency company-wide, and re-focus to establish a clear path for growth, profitability and renewed shareholder value."http://www.nortel.com

  • In June 2008, Nortel announced that Verizon Telecom had selected its Metro Ethernet Routing Switch (MERS 8600) to expand its metro Ethernet backbone. The platform provides Provider Backbone Bridge (PBB) technology, MPLS related technology, and the Metro Ethernet Manager (MEM) system. Verizon will be testing all the MERS technologies in its laboratories for use with its Ethernet-based networks, including the Switched Ethernet Services (SES) network. The Nortel solution also includes Ethernet OAM technologies. Financial terms were not disclosed. Nortel's said its PBB-based solution helps address scalability challenges in metro Ethernet. Additionally, fault monitoring allows rapid troubleshooting to meet strict Service Level Agreements (SLAs) and ensures a better customer experience.

    At the time, Nortel noted that it had more than 30 customers around the globe selected its Carrier Ethernet solution in 2007, including, Dakota Carrier Network, Frontier Communications, Silk telecom, groupe-e, and Shanghai Telecom, among others.

  • Also in June 2008, Nortel announced a re-alignment of its 4G wireless broadband strategy including plans to focus its own wireless R&D resources on 4G LTE and wireless applications, while partnering with Alvarion to address WiMAX opportunities.

See also