Nortel in '09: Dismantling of a tech stalwart

By Features IDG.net

This year saw the slow, painful dismantling of Nortel. Its gradual exit from the tech scene played out the entire year, as each month brought news of more layoffs, markdowns or sell-offs.

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The story began in January, when Nortel filed for Chapter 11 bankruptcy in an effort to stem a financial free fall brought on by the perfect storm of the global economic crisis, little demand for product, the ripple effect of a previous accounting scandal and strategic missteps.

Then the company began small-scale divestitures that would ultimately lead to a more significant dismantling of operations. It exited the mobile WiMAX business by ending an alliance with Alvarion (Nortel had previously targeted WiMAX as a strategic growth business for the company going forward).

In February, Nortel claimed it was still signing up new customers in light of the bankruptcy filing. But later that month, the company ditched its shareholders meeting, laid off thousands more employees, and then sold its application switch business to Radware for a mere fraction of what it paid when it bought Alteon in 2000.

The deal with Radware was but an appetizer for a much more significant dissolution of company assets and operations. In March, word leaked that Nortel was looking to sell off more assets and businesses as part of its sweeping restructuring under bankruptcy. Also that month, Nortel wound down its investment in the Carrier Ethernet switch and router market and canceled its block of rooms at the CTIA convention in Las Vegas.

In April, reports surfaced that Nortel was also looking to sell off its stake in a joint venture with LG, the Korean electronics giant. The venture was started in 2005 and had about $1 billion in revenue in 2008.

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In May, Nortel tried to deflect attention from its unraveling operations by announcing a core data center switch, the VSP 9000, at Interop. But at Interop, enterprise chief Joel Hackney admitted that customers had "hit the pause button" on purchasing and placing orders for Nortel products in light of the company's fading fortunes.

The next month revealed that some former Nortel executives were looking to acquire the company in an effort to keep it the top investor in R&D in Canada. That deal never materialized, but others did -- Nortel announced that it was selling its CDMA and LTE wireless businesses, and confirmed speculation from previous months that it is seeking buyers for the rest of the company's operations. Nortel was officially leaving the scene after admitting that it was unable to complete its restructuring plan.

Later in June, reports surfaced that Avaya was offering $500 million for Nortel's enterprise business, and that Nortel was laying off executives spearheading its unified communications alliance with Microsoft. But the writing was already on the wall for that partnership -- Microsoft got cozy with HP in May to effectively replace Nortel as a strategic UC ally.

In July, former Bay Networks CEO Dave House (Nortel bought Bay for about $8 billion in 1998 only to watch that business decline over the next 10 years) suggested Nortel spin off the enterprise business as a stand-alone entity and "rename" it Bay Networks. Too late: Avaya made the earlier speculation official when it offered $475 million for Nortel's enterprise assets.

And later that month, Ericsson emerged as the winning bidderfor Nortel's CDMA and LTE wireless assets by agreeing to pay $1.13 billion for them, almost twice the initial offer from Nokia Siemens.

August saw Nortel CEO Mike Zafirovski leave the company following a determination by Nortel's board that the company had reached a "natural transition point." Zafirovski had failed to revitalize the bankrupt telecom giant as he had planned when he took the reins in 2005.

In September, Avaya officially won Nortel's enterprise business but it had to almost double its initial offer, and jump through some flaming hoops ignited by Verizon. The carrier, which resold Nortel's VoIP product, went to court to win assurances from Avaya that Verizon customers would not be left out to dry on service and support contracts. Avaya promised "near-term" support for those customers.

Nortel's Metro Ethernet business attracted Ciena in October, to the tune of $521 million. And then ex-CEO Mike Z re-emerged -- to sue Nortel for $12 million in back pay, bonuses and benefits he claimed was owed him, even after failing to revitalize the company. That litigation was still pending at press time.

Late November saw Ciena win Nortel's Metro Ethernet business by upping its price to $769 million. And Ericsson and Kapsch acquired Nortel's GSM wireless assets for about $103 million.

With Metro Ethernet, enterprise and wireless operations sold off, and WiMAX shuttered, what is left of Nortel is essentially the Carrier VoIP and Applications Solutions group, which includes softswitches, media gateways and applications. But that too is for sale and the company is in maintenance mode while preparing for what seems to be an eventual extinction.

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