Nortel may shrink, but it won't vanish

Mon May 18, 2009 8:31am EDT
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By Wojtek Dabrowski

TORONTO (Reuters) - Nortel Networks Corp will most likely sell off most of its pieces at firesale prices as part of its bankruptcy restructuring, but experts don't expect one of the most storied names in Corporate Canada to disappear altogether.

Under the bloated exterior of what has become an outgunned has-been, analysts see a rump operation with the potential to be a viable company with a chance to succeed in one segment of the telecom equipment business.

When the dust finally settles, the only remnant of the once mighty Nortel expected to be left is Metro Ethernet Networks (MEN), the unit that makes Internet infrastructure and includes its optical and carrier ethernet technology.

The MEN unit includes a promising new technology that lets telecom companies quadruple the capacity of their networks using fiber-optic cables thinner than a human hair.

Telecom companies are looking for ways to quickly and cheaply boost their network bandwidth to meet exploding demand driven by online video, music and gaming.

"It would be smaller, obviously, but it would be a viable company capable of competing in that space," said Duncan Stewart, an analyst at DSAM Consulting in Toronto who has followed Nortel since 1990.

Nortel tried to sell the MEN unit last year, before pulling the plan in early February when no bids materialized. Some analysts blamed the weakening economy on the absence of interest. The MEN business generated $360 million in first-quarter revenue, accounting for about 21 percent of Nortel's total sales.

"This really is the jewel in the crown," independent technology analyst Carmi Levy said of MEN. "The good news is that as the economy comes out of the recession, this is the one unit that is optimally positioned for growth."   Continued...

<p>The Nortel Networks Corporation logo is shown outside their office building in Toronto, January 14, 2009. REUTERS/Mike Cassese</p>