Nortel to offload Metro unit as gloom continues

Canadian kit vendor Nortel added another dark patch to the general economic gloom on Wednesday, and looks to be flogging off its crown jewels in order to keep the ship afloat.

The troubled firm warned investors that it is “experiencing significant pressure” as its customers cut back capital expenditure more than previously expected. As a result, third quarter revenues are now forecast to come in at around $2.3bn, compared to analyst forecasts of $2.6bn and full year revenues are set to fall by 2-4 per cent, compared to forecasts of 4 per cent growth.

Nortel said it is looking at “further restructuring and other cost reduction initiatives,” as well as offloading its premium Metro Ethernet Networks (MEN) business, which includes optical and carrier Ethernet portfolios.

Commenting on the announcement, Nomura analyst Richard Windsor, said that the sale of the MEN unit has nothing to do with the worsening revenue outlook but is an admission that the asset is sub-scale and could bring a greater return through a sale as opposed to remaining inside Nortel.

“The timing was bad, coming on a day of great uncertainty in the broader market, but we think that this bad news has been made substantially worse by poor communication,” Windsor added. “Announcing the warning and the sale of MEN at the same time makes it appear that the company is desperately selling off its crown jewels in order to stay afloat.”

Nortel has already offloaded some assets this year. In June, the company announced plans to shift its 4G focus to LTE, rather than WiMAX, rolling its WiMAX initiative into a strategic agreement with WiMAX kit vendor Alvarion.

The Canadian firm said the move will allow it to achieve faster time to market with WiMAX at a lower cost. At the same time the company will be able to accelerate its LTE development to meet a demand, which it claims is emerging faster than the industry originally predicted.