Nortel Bets On 4G After Alcatel Deal, But Doubts Exist"
TORONTO -(Dow Jones)- Nortel Networks is selling its struggling UMTS wireless access equipment business to French rival Alcatel for US$320 million, highlighting Nortel's bet it can have better success selling next-generation wireless-network gear known as 4G.
However, some suggest that could be easier said than done, in part because other vendors such as Motorola are already having early success targeting the 4G market. 4G networks move data at super-fast speeds, allowing users of wireless devices to receive video and other applications that use a lot of bandwidth.
Nortel's stock price suggests investors are not overly excited by the Alcatel deal. In New York, Nortel is up 2 cents at $2.11 while Alcatel is down 4 cents at $12.49. Alcatel hopes Nortel's UMTS access business will give it sufficient scale to better compete with other vendors in this market.
Nortel Networks's UMTS access business comprises base stations and other equipment that transmit wireless signals to core communications networks. Nortel, Toronto, will continue to sell equipment for core UMTS networks. The planned sale of the UMTS access business is in keeping with Nortel's strategy of focusing on areas where it believes it can command enough market share to grow profits, and shedding those businesses that don't meet this criteria.
"There are too many players in (the UMTS access sector)...and our UMTS access business today lacks the scale and the momentum to be profitable on our own," Nortel's Chief Executive Mike Zafirovski said in a conference call held to discuss the transaction.
Zafirovski said the UMTS access business was operating at a loss, but declined to be more specific. In a research note published earlier this week, TD Newcrest analyst Chris Umiastowski said the access business generates revenue of about $500-$600 million a year and is losing about $200 million annually. Umiastowski or a member of his family owns Nortel stock, according to the note.
However, Nortel believes the lack of success it had in the UMTS access market won't undermine its ability to succeed in selling 4G equipment. The company is counting on winning market share in this area by developing products that lower the cost of owning these networks; offering a broad portfolio of wireless gear for the different types of 4G wireless standards; and by taking advantage of its existing customers in Asia and North America, where demand for 4G equipment initially is expected to be strongest, said Richard Lowe, president of Nortel's Mobility and Converged Core Networks operations.
Nortel is "moving in the right direction," because the economics for 4G wireless networks are better than they have been for 3G, said Peter Hofstra, senior investment analyst at mutual-fund company AIC Ltd. But "it's not slam dunk they will succeed" because of the competition Nortel will face. AIC doesn't own Nortel stock.
WiMax is one of the main 4G technologies, but there are early signs Nortel is already falling behind the competition in this area.
For instance, earlier this month Sprint Nextel Corp. (S), a Nortel carrier customer, said it would invest up to $3 billion to build a next-generation wireless network using WiMax technology, with Intel, Motorola and Samsung Electronics as its equipment and technology partners.
Motorola is also a supplier of WiMax gear to Clearwire Corp., as well as an investor in the U.S. start-up wireless broadband operator founded by well-known telecom executive Craig McCaw.
"Yes it's early days, but Nortel's 4G plan looks stalled," wrote National Bank analyst Tom Astle in a Aug. 18 note.
Astle doesn't own Nortel stock and his firm doesn't have an investment-banking relationship with Nortel.
Company Web Site: http://www.nortel.com
-Ben Dummett, Dow Jones Newswires; 416-306-2024; ben.dummett@dowjones.com
Corrected September 1, 2006 14:58 ET (18:58 GMT)
(END) Dow Jones Newswires"
Posted to the site on 2nd September 2006