Nortel Metro Ethernet Networks assets: Why no sale?

Eve Griliches/IDC
16 Sep 2009

When Nortel's Metro Ethernet Networks (MEN) assets went up for sale in September 2008, it surprised Nortel's customers, employees, vendors in the optical networking space and every analyst who covers that market.

Here we are a year later, and no public bids have been made for the metro Ethernet networking unit. Our sources tell us numerous vendors have done "due diligence" (i.e. taken trips to Nortel to evaluate the equipment) several times over the past year.

So why no sale? It may be a consequence of high price expectations on Nortel's part. The original price was near the $2 billion mark, although it may have dropped to a more reasonable number in recent months. But we expect Nortel still wants more than $1 billion for the unit.

What that means is that any potential suitor has to judge the business case based on purchase price and analyze when the real payback for that investment will be met, as well as when Nortel's optical products will generate enough revenue margin to support the business case.

The optical piece of due diligence also relies on the 40G and 100G market growing enough to support the purchase price. IDC expects the 40G/100G market to unfold slowly or in small volume. In addition, 40G/100G development solutions are well underway from vendors using relatively the same technology and ASIC design. So over the past year, other vendors have had time to catch up on their development, as well as get a really good look at Nortel's secret sauce during the due diligence process.

Other segments of the MEN division, like Carrier Ethernet, are relatively shut down. New products have been cancelled and older products have stopped shipping. The Ethernet functionality is slated to be integrated into the optical products. The Nortel ATM equipment is on its own slow market decline, and both of these segments comprise less than 12% of the MEN revenue anyway.


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