CDMA spending fall off hits Nortel

Nortel is bearing the brunt of lower CDMA spending in North America, attributing declining sales in that key market to a single unnamed key customer—much the same story that Alcatel-Lucent told earlier this week.

Today Nortel posted a $113 million Q2 loss despite better-than-expected sales for the quarter. The new sent the vendor’s stock plummeting on the New York Stock Exchange. CEO Mike Zafirovski attributed Nortel’s decline in wireless infrastructure revenue and orders to a North American customer that has “shut the door” on capital spending. While Zafirovski or other Nortel officers declined to name the customer, most analysts peg the culprit as Sprint. Sprint’s too largest vendors are Nortel and Alcatel-Lucent due to their lock-down on the global CDMA market. So as Sprint’s network spending subsides, so do Nortel and Alcatel-Lucent’s fortunes.

Sprint has not reported its 2^nd quarter numbers yet, but in May it noted a 38% cut in capital spending. Facing both financial and operational problems, Sprint has faced increasing pressure from its investors to cut costs and staunch the flow of customers to other operators. Skyline Marketing Group president John Celentano has pointed out Sprint is in a position to cut back on capex that other operators may not be in. Sprint’s subscriber rolls have been falling, leaving it without the need to add capacity to the network. In addition, Sprint has begun investing in its 4G network, partnering with Clearwire to build a nationwide WiMAX network. As Sprint and Clearwire shift more and more data traffic over to the WiMAX network in the coming years it will be less pressed to add additional 3G capacity.

In the near term though, Sprint may have an alternative to large-scale expansion of 3G. It announced on Wednesday the commercial rollout of its femtocell product. Femtocells would allow Sprint to add capacity on a customer-by-customer basis, minimizing the need for new macro-cellular deployments while increasing revenue from its customers.