Nortel to abandon carrier Ethernet, optical

On a conference call this morning, Nortel cited three sources of weakness: changes in foreign exchange currency rates, general market conditions and product delays, mostly among carrier customers pushing purchase decisions from the third to fourth quarters – and in some cases, to the first quarter of next year. In addition, some enterprise customers are delaying new IT and optical networking investments, Nortel said.

“We do not believe we’re getting full value for this asset,” Nortel’s chief executive officer, Mike Zafirovski, said on today’s call, referring to the metro Ethernet group. “The status quo is not an option for Nortel.”

Some analysts on the call at times seemed puzzled. One called the move “a bit reactive,” as it seemed to apply long-term strategic decisions to more immediate market conditions. Another analyst pointed out that Nortel’s management has been expressing confidence in the metro Ethernet group very recently. “Seems like an awfully big change awfully quick,” the analyst said.

As Zafirovski argued that the market conditions it was witnessing were not specific to Nortel, one analyst on the call pointed out that the pain Nortel is experiencing is likely also being shared by potential purchasers of the metro Ethernet unit, which could make it harder for Nortel to find a buyer.

“Nortel, having combined its previously separate [optical networking] and carrier data switching businesses about two years ago, provides a tidy package to possible acquirers,” Dana Cooperson, vice president of network infrastructure for Ovum, wrote in a note to clients today, pointing out that Alcatel-Lucent, by comparison, has kept its optical and data groups relatively separate.