Nortel - The Anti-climax

The inevitable outcome of Nortel's woes is now proceeding to the end game: This is exemplified by the following quote from the CEO:

"We're in advanced discussions with anywhere from three to seven companies for each one of the assets," said chief executive officer Mike Zafirovski. "If we're successful in getting the right value and the right integration planning and so on then Nortel as an entity which we know it will no longer be here in the future."

I would hope that by now no one is surprised. The climax of this long, drawn-out story was in late 2008 when carriers and enterprises responded to the financial crisis by deferring the majority of their discretionary capital expenditures. This turned out to be a large fraction of their capital budgets. Nortel, already weakened, suffered a fatal blow. The patient was dead before the body even hit the ground.

From the creditors' perspective, what this outcome means is that the parts are worth more than their sum. For much of the preceding 40 years it was the opposite: the whole was greater than the sum of its parts. By parts, I mean the individual product lines and business units.

A large corporation that is a conglomerate of such parts must have some market benefit to keeping their diverse portfolio under one corporate banner or there will always be shareholder pressure to divest one or more of those parts. In Nortel's case, the benefit was that the world's largest carriers could rely on Nortel to supply a broad range of their network infrastructure requirements. It also meant that Nortel had a presence in every aspect of the telecommunications business. Want a business telephone system? They could point to Meridian and Norstar. Want a hosted business telephone system? They had Centrex. This was true throughout their portfolio. Few companies had that breadth; even today, Cisco's telecommunications portfolio has many gaps (their lock on the enterprise and carrier IP business gives them their edge).

That theme that made Nortel so strong has vanished: there is no glue to hold the parts together. Nortel knows it, and so do their customers. Add their financial woes to the mix and you get what we see today. Nortel will soon truly be history. What a shame. I still remember the confidence I had in heated, though friendly, discussions years ago with colleagues in Lucent, Siemens and the other big equipment vendors that when the inevitable shake-out in the business occurred that Nortel would be one of the giants left standing.

One amusing note was this quote from Susan Spradley of Nokia-Siemens Networks on commenting about their offer to purchase Nortel's wireless business:

Ms. Spradley said the acquisition will be complementary to its current operations.

“The relationship and customer base that they have is tremendous and we’re very excited to expand our relationship with some of those customers even deeper,” Ms. Spradley said.

Ms. Spradley was one of the Nortel senior executives (business unit President) who the company sacrificed in a bid to appease prosecutors looking for blood in the wake of their financial shenanigans. This deal must have provided her with a pleasant moment of schadenfreude.