May 11, 2009 1:30 PM,

Nortel acknowledges talks with outside vendors

By Kevin Fitchard

Though still trying to emerge from bankruptcy protection whole, Nortel says it is negotiating with 'external parties' for possible business unit sales

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Nortel’s 4G business will likely be one of its most attractive properties. While the vendor hasn’t landed a single LTE contract, analysts and even competitors have privately acknowledged that Nortel has one of best product lines in the industry, spurred by years of research into orthogonal frequency division multiplexing access (OFDMA) and multiple input-multiple output (MIMO) technologies. The conundrum Nortel faces is that it can’t sell those LTE products while under the cloud of bankruptcy.

Nortel wasn’t among the two finalists to build Verizon Wireless’ new LTE network, though Nortel executives claimed the vendor was a close third in the contest. A UBS Research report didn’t even name Nortel among the trial vendors AT&T is supposedly considering for its own LTE launch in 2011. UBS said Ericsson (NASDAQ:ERIC), Alcatel-Lucent (NYSE:ALU) and Huawei have made the short-list, from which AT&T will select two to build the commercial network. Nortel isn’t the only vendor under financial pressure that is feeling the squeeze from its larger competitors. Motorola (NYSE: MOT) said last week it is scaling back its investments in LTE after failing to win in of the big contracts awarded so far.

Reporting its first-quarter results today, Nortel posted a $500 million loss off of $137 billion in revenues, a 37% decline year-over-year. Nortel chalked up the drop in sales primarily to the effects of the bad economy and the stigma of bankruptcy, but Nortel said it was able to keep many of its current customers as well as attract a few new ones in an otherwise dismal quarter. In an interview shortly after Nortel’s Chapter 11 filing, Carrier Networks president Richard Lowe said that customer retention would be key in showing Nortel would be a viable company outside of bankruptcy.

Nortel was most successful in accomplishing this in MEN, which saw only a 10% revenue decline. Nortel said it shipped more than 500 40G line ports in the first quarter and launched 100G trials with two new operators. In the carrier and enterprise groups, though, it did much more poorly. In the two divisions, revenues fell 32% and 41% respectively. LG-Nortel was hit hardest, seeing a 66% decline.