Alvarion CEO hits out at Nortel

The CEO of Israeli WiMAX vendor Alvarion, Tzvika Friedman, has voiced his anger over the firm’s exposure to the strife of its distribution partner Nortel Networks. Speaking to Telecoms.com yesterday he accused the Canadian firm of exploiting Chapter 11 rules to avoid paying Alvarion money the firm is owed – and vowed to reclaim it at all costs. 

When Nortel filed for Chapter 11 bankruptcy protection in mid-January 2009, Alvarion was forced to write off $2.4m in lost equipment sales in its Q4 2008 results. The Israeli supplier had shipped the WiMAX equipment to Nortel as part of the two firms’ partnership, but Nortel’s Chapter 11 move means – says Friedman – that Alvarion won’t get its dues without a struggle.

“I am very unhappy with the way Nortel behaved with the bankruptcy,” Friedman told telecoms.com. “They owe me money and they are not paying it. They are hiding behind bankruptcy rules. We intend to get this money any way we can,” he said.

“Very simply, we shipped to [Nortel] and they shipped to customers and collected the money. They can pay the money. It is not as if someone owes them and they owe us. They are using the Chapter 11 bankruptcy [rules] to their maximum advantage. Naturally, that is something I don’t like.”

As well as the lost $2.4m revenue. Alvarion had to write-off the cost of the equipment related to the Nortel sales during 4Q 2008, which hurt gross margins and profitability. “We still managed to meet our financial target of $70m revenue but we could have done better,” said Friedman.

Friedman also believes a case can be made for retrieving more than $10m from Nortel related to the subsequent breaking up of Alvarion’s WiMAX partnership with the Canadian supplier. As part of this agreement, Nortel was to provide Alvarion with substantial funding for WiMAX development during 2009. That money, said Friedman, is no longer there.

“In December 2008 we announced cuts that would give us about $15m of savings [in 2009], most of which were taken from opex and some of it from the COQ [the cost of equipment],” he said. “The Nortel funding [for 2009] is about the equivalent of all the opex savings, so we needed to make those savings again because not having [the Nortel] money could take Alvarion into losses. The only way to deal with this immediately was to cut salaries by ten percent [excluding the lower paid] to fill most of the hole left by Nortel.”

One other aspect of the Nortel-Alvarion partnership is that it was supposed to help the Israeli firm break into new markets, in particular North America. But Friedman argued that Alvarion won’t be adversely affected on this score. “Most of the deals we are working on [as a consequence of the Nortel partnership] we can take direct or work with another partner. Even if we don’t take all the deals we are working on, the deals we do take will be with a bigger margin.”

Friedman does acknowledge that, since going into Chapter 11,  Nortel “has been good in terms of transferring account by account [to Alvarion], and making sure that the customers are not hurt at all”. But this does not quell his frustration at being unable to reclaim the money he says he is owed. “I will not take liabilities on Nortel on something I was not paid for,” he said.

To rub salt into Alvarion’s wounds, Nortel said Tuesday that it has been granted a 30-day extension to its Chapter 11 bankruptcy protection.

The company claims it needs more time to develop a “comprehensive business and financial restructuring plan” after it first filed for Chapter 11 in mid-January. Now it has until May 1 to come up with a plan.

While Nortel struggles under a $4.5bn debt burden, it retains an estimated $1bn cash reserve.