Partners stay calm as Nortel contemplates selling Metro Ethernet

Nortel lowered its revenue forecast and may dump its Metro Ethernet business, but partners don't think the move will affect them much.

Nortel's channel partners aren't rattled that the company may dump its Metro Ethernet networking solutions business to address shrinking revenue and plunging share prices.

In fact, Nortel partners are hoping the move, discussed Wednesday, means that Nortel will now concentrate on reshaping itself into an enterprise-centric software and applications company.

"Are we surprised that the carrier business is down? No," said John Wrona, executive vice president of sales and marketing at Nortel partner Ronco Communications & Electronics in Tonawanda, N.Y. "Sixteen percent of households didn't have a wired phone in 2007. I expect that number to expand."

"What they are doing is proactive. Now they will continue to invest in unified communications and integrating it into Microsoft and IBM. That's Nortel's core and that plays very well into our customer base," Wrona said.

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It's only been in the past few years that Nortel has worked toward making enterprise applications its core, although the company has long had a strong PBX offering. Nortel -- once the manufacturing arm of legacy Canadian telecom Bell Telephone Company --made carrier equipment its bread and butter for years.

As for the Metro Ethernet networks business, Nortel CEO Mike S. Zafirovski has touted its potential growth in recent earnings calls, and it was considered central to the company's future. Metro Ethernet accounts for about 14% of Nortel's business.

That tune changed Wednesday when Nortel predicted revenue would drop 2% to 4% in 2008, attributing the decrease to shrinking carrier capital spending and deferred spending on new IT and optical investments.

"It is clear that the business environment in which we operate requires additional immediate and decisive actions," Zafirovski said in a statement. "A comprehensive review of our business is taking place and we are determined to reshape the company to maximize its competitiveness." The restructuring means job cuts, but the company has not given an exact number. Nortel has about 32,550 employees down from more than 90,000 eight years ago.

Nortel partners that sell optical Ethernet product say their businesses will carry on.

"We don't see any immediate impact. [Metro Ethernet] will transition to another company and we will just incorporate that into our portfolio as well," said Stuart Chandler, CEO of Nortel partner Optivor Technologies in Jessup, Md. "We just got awarded a very large optical deal yesterday. This isn't going to stop just because they put out a press release."

Though news of Nortel's lowered revenue prediction sent its shares skidding 49% Wednesday with little recovery Thursday, partners say they don't think Nortel's financial uncertainty will ward off customers.

"Whenever you have a partner announce a downturn, it's never particularly positive. But we've been with Nortel for 33 years and we've seen this multiple times," Wrona said. Nortel took a heavy hit, for example, when the tech bubble burst in 2000 and 2001.

Partners also say that Nortel's enterprise equipment remains compelling because it is much greener than Cisco's. Nortel has launched a marketing blitz around its green calculator and the power savings it says its equipment offers.

"Now with CEOs being challenged to do more with less, Nortel has a great story to tell," Chandler said.

Selling the MEN business would address the criticism that Nortel has long received for trying to be too many things to too many customers, he added.

"Everybody knew back in the '90s that Nortel had a lot of product lines, so this is a natural evolution," Chandler. As to why Cisco is able to handle so many technology sectors, Chandler and every other Nortel partner interviewed pointed to Cisco's strong marketing machine.

Wade Griffin, president and CEO of Nortel partner Pyramid Communication Services, a Carrollton, Texas, Nortel partner, said partners have bigger problems to think about than Nortel's performance.

"I am sure Cisco will make a little hay with this, but Nortel has been around for so long and their technology is good. It's the economy that is going to be a problem," Griffin said. "Our business is really down from last year."

In the meantime, more than a few financial analysts pondered the possibility of Nortel being up for sale even after it dumps the Metro Ethernet business. But Nortel execs have given no hint of that.

"We certainly have our challenges, but I think we've got momentum as well, and if we stay focused on the growth areas with more firepower, we feel confident we can power through this," Nortel chief strategy officer George Riedel told Reuters.

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