Who’s Looking for a Good MEN?

By Mark Evans | Published: August 12, 2009

Amid Mike Z.’s decision to abandon ship, the sale of the CDMA business to Ericsson, and calls for the federal government to block the Ericsson deal, it’s been interesting to see how little attention has been paid to Nortel’s Metro Ethernet Networking business.

This is, after all, a business that was seen as Nortel’s crown jewel (before the LTE patents were thrust into the spotlight), and it attracted several bidders when Nortel put MEN on the block last year.

These days, however, MEN has been thrust out of the spotlight while most of the attention about the Nortel Garage Sale is focused on the sale of the Nortel’s enterprise business.

That said, LightReading has a story suggesting that Ericsson could emerge as a potential buyer for MEN.

“Ericsson still seems to be the best fit for MEN, based on Nortel’s North American presence in optical and Ericsson’s lack of optical networking market share,” Heavy Reading analyst Sterling Perrin told LightReading. “Most other potential suitors have a fair amount of overlap and so would really only buy or need bits and pieces of MEN.”

In the second-quarter, MEN sales dropped 27% to $330-million as “revenues from certain customers in the second quarter of 2008 that did not repeat to the same extent in the second quarter of 2009″.

Still, MEN is a solid asset that will eventually find a new home when all is said and done. Of course, Nortel will get nowhere near the $1-billion to $2-billion that it hoped to attract last Fall.

This entry was posted in Financials, Optical and tagged Ericsson, MEN, Nortel, Nortel Garage Sale, Optical. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

zeroman

Major cut coming into Optical.

Who would buy this. It is tanking fast losing money.

2Q10 Optical will be about $150M Data almost $0 Services $70M

Nobody will buy this for more than $300M now.
qcboris

There is a very good reason why MEN hasn't sold easily this time (or last time). Nortel's dirty little secret is that the business has almost never been able to turn a profit. The Ottawa appetite for unlimited R&D means that the business has a couple of good years every decade when demand goes nuts for whatever reason, and then loses it all (and more) doing science experiments on the new new thing for another 8 years.

Margins are crappy (and always have been), so $211m doesn't generate much margin to pay for all the R&D. At $211m a qtr barely a player in the market..

There are some smart engineers in Ottawa, some market share, a good service business that will generate cash for quite a few years to come off the installed base, and a few products that make decent margins, but this isn't the jewel in Nortels crown that it has been spun to be.
felixmk

Agree but would add that MEN was managed to “look good” rather than “be good”. Phillippe, Mumford, Mcfadden et al were all about talking up optical like it was the jewel in the crown. The crazy acquisitions and over-investment in optical of the 90's based on this horse poop was part of the reason for Nortel's demise.
williamtran

Nortel is difficult sittuation, most of customer in the world hold PO because they worry of Nortel they not worry about product. So we statement difficult to sell MEN is not true. In the first time there were more than 30 companies are interesting to buy MEN. Now I think even more. But a key thing Nortel MEN have a lot footprint outside of North America and next generation of product combine a lot of enhance data there.
zeroman

Whoever buys it will buy for the customers and kill it. Simple. Too risky to create a company solely on optical. There are many Ciena, Fujitsu, Sycamore, JDS. If one of these buys out MEN, then I'd say JDS can be counted out. Ciena and Fujitsu both have their 40G story so either they have to kill off their business or take all the innovation from Nortel and port it over. The latter would make more sense would it not.

But even if it sells, can you imagine any company taking the 1500 employees. All of them reside in Ottawa. So it will be carnage. I would expect 800 layoffs in MEN as well.

MEN has never generated a profit. Wasted away on bad decisions. SG&A and R&D are way too high as well.

A decline of 28% YoY and 8% QoQ. Sales are whenever there is a network overhaul or major increase in bandwidth. After that there is no real need until the next cycle.
dickwang

Me think same what you think. MEN are good, bloggers stupid. Many MEN product better of competitors. MEN product sell good in many county: Zimbabwe, Burma, Sudan, Vietnam and many more. Soon MEN win all competitors down and buy Ciena and Fujitsu. Footpaw autside of North America is even more over Huawei.
Me think you run MEN.
protosphere

“Nortel's MEN group is no worse off than the rest of the company, it does stand out because the bidding war for its assets appears nonexistent. Sources say Nortel still can't seem to find a suitor willing to shell out what it thinks (but hasn’t said) its optical transport group is really worth. “

“Something should happen soon, though, because Nortel's MEN is losing its luster, even in the more cutting-edge technologies like 100-Gbit/s optical transport, Perrin notes. “I am seeing a lot of companies developing this technology internally now, so I’m not sure that Nortel’s 100G is as valuable as it was to suitors even 12 months ago.”"

_________________________________________________

Ericsson may best be suited to buy MENs than anyone else but will they given Nortel already had it on the market to no avail, let alone today. Besides they already bought almost all of their profits /wireless.

I also question the value of the Long Term Evolution technology they bought. Nortel boasted 4G/LTE leapfrogging 3G after selling 3G/UMTS to ALA-LU. We argued they had blown away their 3G base to migrate 4G customers from at the time so what is left for Ericsson here.

I also felt LTE would take the route of long boasted WiMax that drown along with their endless other failed aspirations from Neptune to Putian to BSNL to PEC, etc., name it… yet the patents have value they say.

Amid hard to sell MENS, I am puzzled at how much value LTE has, given the short development time since announcing bypassing 3G and just how many valuable patents they could have possibly mustered during this short period, some of which they licensed to Ericsson that perked RIM's protest who were in negotiations for them prior to insolvency and liquidation.

I suspect Eric primarily bought CDMA for Nortel's remaining earnings (CDAM was almost all OF Nortel profits /80-90% EBT) for what they can get out of it during its remaining decline to justify a 1.13B price tag. How can they bank on future LTE any more than MEN given the earnings and competition.

Ericsson is down 61% and laying off employees to gamble on profitless units, so I can't see it.

There must also be a reason Avaya wants Enterprise too… and like Ericsson, perhaps they are gambling they can make a better go of it as I keep reiterating, just how much is losing money worth to these guys.

I must be something here given there are bids.

Also. as Nortel reiterates seeking to preserve value, I do not see all this abrupt departure of the captains abandoning the sinking ship before liquidating all assets as assists preserving value.
joremero

so is ERIC allowed to buy? wasn't it in the bid for CDMA that they couldn't buy anything else?
TongueInCheek

My understanding of the Standstill Agreement is all they need to do is to seek Nortel's permission and approval to be a part of future business unit auctions, regardless of the 12 month clause.

Having said that, I also think that Cisco is a possible candidate to be part of the MEN auction. The value of 40G/100G technology can be moved to their Router platforms and the Optical systems increases Cisco's mind share with Services Providers which today is a small part of their revenue profile. Cisco needs growth. They can get growth by extending their Carrier offerings more than they can achieve this growth in their Enterprise business.
XPM_guy

No – that was just RIM propaganda. The actual restriction says that Nortel has a right to sell to whomever they want to. Anyone who meets the criteria for a Qualified Bidder can bid on any of bits of Nortel up for sale and/or negotiate to act as a stalking horse for any collection of bits that they want.

RIM's heartburn stemmed from the fact that they just wanted to buy the LTE patents, but while they were still negotiating that deal, Nortel cut a stalking horse agreement with NSN that included free use – but not ownership – of those LTE patents. RIM cried foul and published that claim about “1 year without a chance to bid again”, when that 1 year period applied to whether or not Nortel would be the one they'd be doing the deal with. Since RIM felt they could no longer trust Nortel's current mgmt team, they declared that they were being blocked from the sale. All smoke & mirrors…

So NSN, E///, MP, and even RIM are free to bid against Avaya in the deal they've staked out via their stalking horse agreement. Or they could make an offer for their own deal containing any or all of what's left (e.g. RIM could negotiate a sale of just the LTE patents, but is currently pushing for political support behind their claim instead of or in addition to that negotiation)…
fishymcdonk

With Tellabs out of the way, Ericsson now appears to make the most “sense”. They have little to no product overlap with MEN, little to no optical networking presense, and are growing their North American carrier footprint.

But a few of things argue against them doing it.

They really are a wireless company. They have their sh*t together in this space. They just bought Nortel's wireless stuff, maybe for a bit too much, but they know what to cut and who to save. But they will still have their hands full sorting things out. Buying a business they do not know much about would mean a lot of mgmt distraction and having to rely on the very Nortel mgrs who got Nortel into this mess in the first place. It is simply too much to take on with too much risk.

It actually makes more “sense” for an established optical player to take them on. Yes, there would be some product overlap, but they could migrate that customer base to their prefered platform – basically buying share. And Nortel's lead in 40/100 would add instant revenue to anyone except NSN. They would know what/who to chop immediately and hit the ground running with only the good parts. Also, an existing player basically eliminates a competitor. Ericsson keeps a player around. I think one or more of the established optical guys would outbid Ericsson just to keep this stuff away from them.

I see it much more likely that Alcatel or Ciena will win this business. They may not be the initial bidder though. And it is almost a certainty that the initial bidder will NOT be the final winner. You may see Ericsson in the mix, but ultimately it will be a current optical player that will take this.
zeroman

Alcatel is unlikely although they can spring a surprise. They are going through integration challenges with Lucent still. And are quite bloated as well. If they do, they would be the New Nortel. Being everything to everybody.

My bet is Ciena.
zeroman

why is Tellabs out of the way. was it ever in the running?
qcboris

Whoever buys it will either crash and burn fast with this boat anchor around their necks or cut back on R&D spending 75% fast and prune the product range. Either way there isnt a long term future for Ottawa any more.
less

I'm curious as to how Nortel's physical DE-integration process will execute throughout NT R&D, how long it will take, whos gonna pay for it…
Teleguy

Ericsson has a sizable optical business, but with LTE they are going to need to beef it up. I see Ericsson as an interested bidder, especially since they can add to their Ottawa and Montreal wireless employees with MEN (based in Ottawa and Montreal).

Ciena will likely be a bidder, but their losses YoY Q1 were more than double MEN's losses. I don't see any positives in this combination.

The Chinese are going gangbusters in optical, but ZTE and Huawei will have some political and, possibly, regulatory hurdles to overcome. I think these would be a deal killer.

Fujitsu might also be a bidder. They have a fairly strong optical background.

Alcatel-Lucent might bid. I am not sure MEN would benefit as they likely have overlapping products. Like all the other bidders, they would be interested in the customer base.

Cisco is an unlikely bidder, but you never know.
ex_men

What's to prune? OME 6500? If you don't want it, you don't want MEN. OM 5000? Why prune a cash cow? What else is MEN spending R&D $ on?
Norterrible

The first thing any acquiring company must do is lop off the cancer from this dying corpse call MEN if there is any hope to make it profitable in the long term. Lop off the incompetent Product Management team comprised of past patronage appointments and the old BNR R&D architects, managers, directors, and VP who are completely clueless to today's market and cost-driven dynamics. Working on fun things that nobody wants or is willing to pay for must stop. There are indeed great designers still in R&D but the upper levels are pure corporate fat siphoning off huge salaries while returning absolutely no value with no accountability whatsoever.

The only people that really thinks MEN is a crown jewel are the people trying to sell it.
zeroman

3500, esu, dead metro next, dead passport, dead mers, useless network management

wonder what 1500 employees are needed for.
realinfo

Agree with Norterrile.
Morin is worst than MikeZ in people selection. Morin's cabinet is full of his personal friends:
- He let go of one of the best R&D leaders MEN ever had. He is running the show in Nakina.
- He saved and brought back his operations lady moving her back from the CTO office where she was part of the ill USDRP junk.
- He kept few cost reduction people all of them did nothing to improve MEN margins
- Most of the good PLM folks left to other companies. Actually The PLMs who build OME6500 left to Agere, BTI and other companies
- He kept few Directors running verticals, but have no clue what these verticals are

Morin stole Optical Ethernet plans from Steve Slatery (now Cisco), fired few people who understood what Ethernet is then hyped PBT and damaged any hope for CE.

Morin is not a GE graduate, but he bypassed them with his zero people leadership and lack of vision
zeroman

if you raised Morin then I should raise McFeely. would be interesting to see how the new company looks at these people when they pull off duds over there.
realinfo

right.
Morin the HDX hero with 200 Million down the drain and McFeely with 150 Million MPE down the drain. Not sure who wasted more money, but both deserve a GE honory degree. That is why Zero Man kept them

Directors reporting to them are sample of bad qualification for the job. One of them does not even have university or collage degree but she is running customer facing organizations. Most of them are hiding under Morin's friendship. The management up to the 1st level is very rusty.
scalppeeler

So tell us about the major cuts coming in optical.
Do you have numbers.
Are you an ex MEN employee?
Just the facts maam.
scalppeeler

Why would you kill technology like that.
Get Current.
So here we have another person predicting a 50 percent layoff as
opposed to 15 to 20 rumoured in wireless and enterprise.
Pretty weak speculation you are throwing out there.
Every business declined in QoQ pretty well everywhere.
Check the numbers from all the competitors particularly in this case
and you'll see. Same for wireless, enterprise and CVAS.
scalppeeler

Ciena is possible but they'll have to go more in debt than they are now and borrow money to do this. Don't know if they have the bandwidth for that.
Teleguy

That's what he does. He has no concept of Nortel's MEN business, but it is entertaining to read.
Jimbo976

What? You mean many people on here spout all kinds of crap off the top of their heads that has very little truth in it? The internet sure is amazing eh?
scalppeeler

It sure is.
And think of all the hardware that supports the internet and allows
for bandwidth and speed increases.
Teleguy

I'm more amazed at the people here who believe it.
S_O_S_This_is_HMS_Nortel

Agreed. For the dead products, they are still managed to keep huge amount of resources (with very little to do) to hold the customers at bay and generate some service contracts.

Once the cows have been milked bone dry sometimes next year, you are looking at a hugh deadweight division. The competitors are catching up with the 40G/100G technology therefore it doesn't make sense for one of them (Cienna) to acquire except perhaps for the sale channels.
scalppeeler

So tell us how “the cows will have been milked bone dry sometime next year”. Provide specifics to back up your claim.
By the way they are called Ciena, with one N.
Easy to say competitors are catching up but when you are over a year plus behind, you've nothing else to do but try and catch up.
Doesn't everyone try to catch up with everyone else in life no matter what the specific task at hand is.
You call Ciena a competitor. They have too many problems of
their own and are not a serious player. Their solutions are very much
underqualified and under quantified.
But hey what do I know.
I have associations with potential buyers for various Nortel businesses.
ERworker

I think the predictions of the death of MEN are a bit premature. Based on revenue numbers comparing Nortel against 9 other Optical vendors, we are holding our own despite being in Chap7 and despite the downturn both of the market in general, and Nortel in particular. Based on a current marketing document OK'd for sharing with customers, and per the Dell'Oro Group as of May '09:

-Nortel # 1 in 40G port shipments for Q1 2009 with 41.5% share
-Nortel # 1 in NA LH DWDM market for Q1 2009 with 27% share
-Nortel # 1 in NA Overall WDM market for Q1 2009 with 21% share
-Nortel # 2 in MS WAN market with 27% share in 2008, 4th consecutive year at #2.
-Nortel # 3 global optical vendor in 2008 with 8% share.
-Nortel # 3 NA optical vendor in 2008 with 14% share.
-Nortel # 3 global Metro WDM vendor in 2008 with 13% share.
-Nortel # 3 NA LH DWDM vendor in 2008 with 14% share.
-Nortel # 3 Optical vendor in CALA with 8% share in 2008, and 12% share in Q1 2009.
-Nortel # 5 Optical vendor in EMEA in 2008 with 7% share.
-Nortel # 7 Optical vendor in Asia in 2008 with 4% share.

Anybody notice all the 1's, 2's, and 3's in the list? I may not be the most business savvy person on this board, but that doesn't look too shabby to me.

And we've made some gains over some of the 2008 numbers as of the end of Q1:

Nortel moves from #3 to #2 top NA Optical Vendor with 16.2% share.
Nortel moves from #3 to #2 in Global Total WDM with 12.8% share.
Nortel gains share in Global LH DWDM moving from 13.7% to 15.3% share in #3 position.

And based on another comparison we just received this week that is more up to date, only ZTE and Huwaei's numbers are up overall for the 1st half of '09 compare to last year. Everyone else's are down, with Nortel having the least decline overall of 17% year over year. ALU is down 20%, Ericsson 21%, Fujitsu 27%, and so on all the way out to 55% for one vendor.

Nortel is #4 on the list for overall revenues so far this year out of 10 vendors, behind only Huawei, ALU, and ZTE. Operating margins so far for MEN have been $69M on $693M of revenue for 2009. Makes one wonder how if our products are so bad and obsolete as is being suggested, how we are maintaining and in some instances growing our market share and not “tanking” as bad as some of the other Optical players are. Maybe there is some real value left in MEN after all.
Lookahead

Thanks ERworker, this post is speaking out reality behind Nortel MEN.
happy2bG

The numbers don't mean anything, since they do not make a profit, they are losing money. The MEN organization have several issues; spending is out of control, their using 80s BNR DMS business models, their set in their ways and will not change, extremely poor management (mafia from the BNR – DMS days) no one in the division understands business methodologies, practices, or return on investments, too many pet projects (do not touch or comment), mentality in the division is we are the best of the best, we made Nortel (something they shouldn't be proud off), we carry Nortel all the other divisions are losers, we do thing our way screw everyone else, it worked for us in 90s we will not change, no understands profit margins (e.g. make small net profit but have negative gross profit) forward thinking, etc

Who ever buys MEN will get a mess, will have to go through and clean ship and people left behind are in for shock
fishymcdonk

Tellabs CEO said they will not bid on MEN
zeroman

how much revenue $ are you pulling in at #1 and #2 categories. and how much of that turns into profit, generating cash for the business?

40G 41% does not mean much. That will soon go down to less than 20%. If you actually own 41% share, how come there are no press releases to match all these sales? One would think new technology would be marketed like hell.
zeroman

exactly. and if you are not an optical guy from the start then you never were. so you are an outsider.

1500 employees in MEN doing what nobody knows.
zeroman

the two of them metronext and pbt heroes with 150 million down the drain.
zeroman

well I have had associations with potential buyers too and they all backed out not seeing much value. this business can tank anytime since everything is old.

it has taken almost a year to sell MEN. that itself has let competition catch up. you are not looking at selling into little ma and pa bells but the big boy gorillas liks Verizon and Vodafone.

since they have put their purchases on hold until Nortel is more certain, competitors will catch up with an alternative when they are ready.

Morin gave up on carrier ethernet and pbt. that whole team i am told are sitting in Alcatel selling the story to Verizon. They have had half a year to build their story. Competition has caught up. Its just a matter of time.

Your post is exactly the type of arrogance in MEN.
less

Again, its hoped that once its gets sheds its self-important hydrocephalics on top, and/or they book with their global-knoweldge-based inflated heads held high, theres a chance MEN might at least manage chug along at +/-0 until it can eventually undo the harm caused it and get back to R&D.

The marble bust of yer Recongizable Global Leader @ Nortel can be adored here:

http://www.museums.norfolk.gov.uk/img/2006_0327…
qcboris

Selling at cost is easy to get market share. Making margin to cover Ottawa is hard. That is the bit that MEN has never figured out.
qcboris

Any potential buyer will figure out that the business is a disaster as soon as they start due diligence. There is some neat technology inside, but hard to figure out how to turn it into a consistent money maker which has real value.

Predict that the Jewel in Nortels crown is sold for $350m. Take 750 employees.
qcboris

Scalpeeler…you sound like an old optical guy. Competitors are a year behind trying to catch up, Nothing wrong with our products (apart from they cant make any money because they were massively overengineered) and Cien(n)a have bigger problems etc.

This is the arrogant attitude that got MEN in the mess its in and why most of the employees will be hitting the street after milking the business dry developing stuff that was too expensive and noone wants anymore except for a few other boffins doing trials.
Teleguy

There have been quite a few press releases but, obviously, some customers will not want to publicize their purchase because of the competition. And it is being marketed like hell.

What I find ridiculous is people slamming MEN's losses without comparing them to the current market conditions and the competitors. It shows a seriously lack of business acumen and market comprehension.
zeroman

when did MEN ever make a profit. next thing you will say MeN was only formed in 2006. ok so when did Optical ever post a profit.

marketed ha. you mean just like PBT where some nortel guy Bucci after 2 years into it says Marketing did not understand it.

you are still a loser at nortel. no future. sandbagging your salary. go write some useless code.
zeroman

someone below said lop off the cancer. but what if it has spread to the entire body creeping into every functioning organ. that is the state of affairs.
scalppeeler

We'll see who is right and who was wrong about all of this when the auction is over and the winner is announced.
You a betting man?
Alcatel is in a world of hurt.
Their time is coming.
scalppeeler

Definitely not old optical.
Just associations of one type or another.
The key to getting or keeping a job in todays economy is to be unafraid, versatile and flexible with no pride or prejudice unless you luck out and are employed in fields such as writing tickets to poor schmucks for speeding and other minor offences. Your comment about employees hitting the streets reeks of jealousy and sour grapes.
Come on. Be Honest.
scalppeeler

So says natasha after she got the boot.
Some real intelligent comments there.
Couldn't back them up with facts and logic if your life depended on it.
scalppeeler

Yer hurtin pal.

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