Nortel's break-up almost over, Huawei rubs salt in the wound

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Nortel's break-up almost over, Huawei rubs salt in the wound

On the first day back from the holiday, two announcements clearly indicated the new world order in mobile infrastructure. As 114-year o

By CAROLINE GABRIEL

Published: 5 January, 2010

READ MORE: M&A | Nortel Networks | Huawei Technologies | GenBand

On the first day back from the holiday, two announcements clearly indicated the new world order in mobile infrastructure. As 114-year old Nortel divested just about its final business unit and headed towards the history books, its former challenger Huawei strengthened its position still further, reporting 2009 revenue of $21.5bn.

The figure is unaudited, but would represent growth of 17.5% over 2008 - very healthy in light of the recession and the poor performance of most infrastructure players, though well down on the 43% growth rate of 2008. And Huawei expects its growth spurt to slow further, warning that the rise in contract sales, its key metric, will be about the same in 2010 as 2009, around the 20% mark.

By contrast, over the holiday, Nortel divested itself of two more units, leaving only small fragments behind. It sold its Carrier VoIP business to privately held GenBand for $282m at the end of the year, and today confirmed Ciena's purchase of its metro Ethernet unit for $769m. The only assets remaining are a fairly extensive collection of patents, still expected by some to form the core of a new company, and Nortel's stake in its joint venture with LG, which is up for sale.

The dismemberment of Nortel has taken almost exactly a year since it filed for bankruptcy protection on January 14 2009, with $4.5bn in debt. Once the firm decided to break up rather than attempt to emerge from Chapter XI in a restructured form, the first sale came in March, when Radware paid $18m for the applications delivery activities. That was in sad contrast to the $7bn Nortel had paid for the business nine years earlier.

The biggest sale came in July when Ericsson shelled out $1.13bn for its CDMA and LTE assets, minus some patents, gazumping stalking horse bidder Nokia Siemens. NSN also lost out in the metro Ethernet segment, sold to Ciena in November, a transaction that has now been confirmed.

Ericsson snapped up another unit in November, partnering with Kapsch for the GSM/GSM-R business, which also includes an important legacy base in 2G switches, especially in the US. The GSM-R elements were offloaded to Kapsch. The combined price was $103m.

Next came the evolved packet core line, which was sold to R&D partner Hitachi for just $10m on December 8. Only 10 days later, Avaya paid $900m for the Global Enterprise Solutions business, along with the smaller government equipment unit and DiamondWare subsidiary. Finally, the year ended with the GenBand transaction.

Many analysts still believe Nortel was wrong to opt for break-up so easily, speculating that the board was "panicked" by the economic downturn when it could have formulated a viable plan to restructure the firm and focus on areas of strength like carrier and enterprise IP.