Nortel Networks, in its first significant strategy announcement since entering bankruptcy protection, has refocused its Metro Ethernet Networks (MEN) business unit and its carrier Ethernet investment on its line of optical networking (ON) products and away from carrier Ethernet switch/routers. While this decision was no doubt a painful one, we think this is the right move to improve MEN's post-bankruptcy chances for market success.
The carrier switching/routing market remains highly concentrated with Cisco reigning supreme with 46% share while Nortel's bankruptcy effectively ending its ability to keep fighting the battle. Nortel will continue to service, support, and ship MERS 8600 and MESU 18x0 products to its installed base of customers and to invest in Ethernet access and aggregation solutions and its Enterprise Ethernet Routing Switch 8600 portfolio.
Nortel was the market leader in ON back in the bubble days. Nortel's biggest post-bubble problem in ON can be summed up as "too little investment too late:" while the company has continued to build differentiated products, its next-generation synchronous digital hierarchy and wavelength-division multiplexing products were late to market and missed the window for some key network builds.
By focusing packet investment on its optical products, we believe MEN will best capitalize on its historic ON strength and provide critical mass to tackle the still early and growing market opportunities for 40G/100G-based products and converged packet-optical products.