Ciena

Nortel Ethernet auction: Ciena ups bid, NSN steps back

NSN released a statement that it did not submit the highest bid for the Nortel Ethernet assets, and that means Ciena won the bid with a higher offer than its straw-man previous bid—rumor says nearly $770 million.

We think this is a good thing for NSN because we doubt the symbiosis would have been as strong. NSN is not a marketing company, and NSN needs to leverage any Nortel asset win far beyond Ethernet in order to gain value. That’s unlikely, given that NSN doesn’t have much in the way of higher-layer technology of its own. We also think that’s true of Ciena, perhaps even more true. Ciena can’t be buying market share at this point, particularly when it’s a North American company itself and thus has an opportunity to make its own way in accounts where Nortel was strong.

In technology terms, Nortel has been the originating champion of PBT, but was unable to keep the momentum going on its own concept, even though carrier interest in the technology was the highest of any in the history of our operator surveys. We don’t think Ciena is going to be strong enough in a marketing and strategy sense to keep it going either, and thus this bid may well kill PBT.

Bidding for Nortel’s Ethernet assets highlights NSN’s needs

Yesterday was the final date for the submission of bids for Nortel’s metro Ethernet assets. Financial analysts are generally saying that the deal would be favorable for Ciena at its straw-man bid price, but of course the favorable outcome demands it getting the bid.

Nortel, whose latest quarter showed more bloodletting, is in the process of self-dismemberment down to a minimalist piece nobody can quite identify yet. NSN is also widely expected to bid for the unit to rekindle its chances in North America, where rival Ericsson’s win of the Nortel wireless unit has given it a leg up. The Ericsson CEO did a bit of crowing over its position in North America, in fact.

With Alcatel-Lucent winning many of the AT&T procurement zones and Ericsson strong in wireless, NSN needs to get effective in a hurry. We don’t think that the Nortel deal will do enough; NSN should look to broader M&A and strategy changes quickly.

Nortel’s Ethernet auction: What of the NSN speculation?

It’s almost time to play “Who’s Got the Nortel Ethernet” assets, with the auction coming in little more than a week. The big question is whether NSN, Cisco or another player might jump on Ciena’s stalking-horse opening bid.

Most financial industry speculation is aimed at NSN, whose numbers seemed to show more product sales erosion than others in the market. At NSN’s analyst event, there was a sense that professional services were the name of the game, though of course they could never sustain a business of that size. Furthermore, nobody knows how much of the professional services business NSN could get without a strong equipment base. In short, NSN needs to sell gear.

The Nortel stuff would bring them a much better North American presence, one of the problems NSN is contending with. It may collide with the Juniper/NSN joint venture, however, enough to reduce its overall value. We don’t think NSN could up the Ciena bid more than about $250 million without paying so much the Street would trash its stock. We also wonder whether more low-OSI-layer assets will really help.

Our feeling: leave Nortel alone.

CIMI Corp. analysis on critical telecom vendors

The February, March and April issues of our newsletter, Netwatcher, will include a special series on eight critical telecommunications vendors. We will present a SWOT analysis of each vendor based on our assessment of the critical market issues in 2009 and beyond.

     - February: We’ll cover Alcatel-Lucent, Cisco and Juniper.

     - March: We’ll cover Ericsson, Nokia-Siemens Networks and Huawei.

     - April: We will cover Ciena and Tellabs.

In April, when all the material has been published, we will prepare a special document that includes all three sets of material plus an introductory section that outlines our view of the market. This will be available at no charge to retainer clients and Netwatcher recipients. We will also provide it as part of our TMT Advisor Information Services series at no cost to any service provider planner who registers with us prior to its release.

Contact us now at tmtadvisor@cimicorp.com for registration. You must provide your name, job title, and the name and URL of the service provider that employs you, and submit your request on your company email. Copies of this document will be available to others at a cost of $150 U.S., prepaid. Contact us for details.