Nortel to Liquidate Assets, Sell Wireless Unit to Nokia Siemens

Nortel Networks, one of the oldest companies in the tech sector, will liquidate assets and sell its CDMA and LTE Access units to Nokia Siemens for $650 million.  Nokia Siemens is a joint venture of Nokia of Finland, a company founded in 1865, and Germany’s Siemens, founded in 1847.   The joint venture is acquiring a unit that manufactures CDMA mobile technology, a system used by several U.S.-based mobile operators including Verizon Wireless and Sprint.  The deal gives Nokia Siemens a significant customer base in the U.S., something that has eluded the company up until now.

Nortel said it was in advanced talks to sell other businesses and that it was applying to have its shares delisted from the Toronto Stock Exchange effective June 22.  Nortel filed for bankruptcy-court protection in January and has been attempting to sell its assets since then, having amassed almost $7 billion in losses over two years.

The company has a colorful history dating back to its founding in 1895 as Northern Electric and Manufacturing, a supplier of phones and other devices spun off from Bell Telephone of Canada.  It started looking into ways of using fiber optic cable in the 1960s at which time it also began designing digital telecommunications equipment.

In 1976, the company changed its name to Northern Telecom and announced Digital World, a family of industry-leading digital telecommunications products.  The DMS-100 became a mainstay of telephone company central offices (it could handle 100,000 subscriber lines without breaking a sweat) and the DMS line contributed greatly to the company’s profits for 15 years.

In 1998, with the acquisition of Bay Networks, the company changed its name once again, this time to Nortel Networks.  It gained prominence in the late 1990s as a manufacturer of fiber optic gear used to transport massive amounts of data over the Internet but was also one of the first casualties when the telecom bubble of the time burst, sending the company’s market capitalization from $398 billion (Canadian) in September 2000 to $5 billion in August 2002.

Now the company, which dropped “Network” from its brand but not from its legal name, will fade from history following a decade of failed and expensive acquisitions.  Its strategy, which was to buy established companies, didn’t work, largely due to an inability to integrate products from the newly-acquired entities into a common vision.  In addition to the Bay Networks acquisition for $9.1 billion, the company acquired software maker Clarify and then Alteon Web Systems for a total of $10 billion in 1999 and 2000 respectively. The company’s buying spree continued with Cambrian Systems for $300 million, Shasta Networks for $340 million, all the way to DiamondWare (3-D stereo conferencing) and Pingtel (SIP software) in 2008.

Nortel’s strategy contrasted greatly with that of companies such as Cisco, which only acquired small and innovative companies at much lower cost and then successfully integrated them into the business.  Today’s Nortel is also a stark contrast to Northern Telecom ca. 1976, when it announced Digital World.

As competition has intensified from North American, European, and low-cost Asian rivals, among them Alcatel-Lucent and Huawei Technologies, the company’s shares sank into the penny range in the months prior to its bankruptcy filing.  In addition, the global economic crisis has slowed spending on the gear that Nortel offers (which includes equipment for the enterprise as well as for telephone companies).

A likely acquirer for Nortel’s enterprise unit is Siemens Enterprise Communications, which has been in growth mode since it became a joint venture between Siemens AG and the Gores Group.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

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