Nortel to abandon carrier Ethernet, optical

Nortel Networks’ decision to sell its metro Ethernet division (which includes optical networks) surprised many in the industry today, as the group was one of the few areas that the vendor chose to throw its weight behind after struggling to redefine itself three years ago. In fact, the metro Ethernet group was one of three areas, along with enterprise communications and carrier VoIP, whose growth potential the company hailed at an analyst event three months ago.

In recent years, Nortel has often touted its success in the 40-Gb/s optical space and trumpeted its position as a leader in the emerging market for connection-oriented Ethernet, namely its innovation of Provider Backbone Transport technology (or PBT, now being standardized as PBB-TE).

In the first half of this year, Nortel’s metro Ethernet group contributed 13% of the company’s total revenue ($705 million), down slightly from more than 14% a year earlier. Last week Nortel reported 25 customers for its 40-Gb/s optical gear, though not all of them currently generate revenue. Mark Sue, an analyst with RBC Capital Markets, estimated the group’s potential revenue contribution next year to be $1.7 billion.

“The situation is getting worse for Nortel,” Sue wrote in a note today. “With softening demand and increased competition, Nortel may need to once again retool and refocus as it looks to find its position in a consolidating industry.”

Nortel announced it would seek a buyer for the group in connection with lowering its revenue expectations for the year today, following a similar move made recently by another optical vendor, Ciena. Both companies cited a particular weakness in North America as a major cause of the revision.