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Nortel exits access

Troubled company shrinking by the quarter.

By Jim Duffy
The Edge, 06/20/01

As part of an ongoing restructuring in light of reduced capital expenditures, Nortel recently announced it is exiting the broadband and narrowband access business. Nortel made the announcement last Friday when it updated guidance for the second quarter, which looks like an unmitigated disaster: revenue of $4.5 billion and a loss of $19.2 billion.

Revenue for the first quarter of this year was $6.2 billion, while Nortel posted a loss of $2.6 billion for the quarter. For the second quarter of 2000, Nortel recorded revenue of $7.8 billion and a net loss of $745 million.

Nortel's access operations include acquired companies Sonoma Systems and Promatory Communications, a membership interest in Arris Interactive and an investment in Elastic Networks. Nortel already alluded to dissolution of the Promatory operations last month when it announced it was exiting the DSL business.

The Sonoma product line included gear that integrated Internet access, corporate data traffic, and voice and video services onto an ATM trunk to the public network. Those products, sold under the Universal Edge brand name, supported NxT-1 inverse multiplexing, DS-1, E-1, DS-3, E-3 and OC-3c links.

The products competed with Ascend and Sahara products acquired by Lucent, and with managed-services products from Cisco. Nortel acquired Sonoma last August for $540 million.

Arris Interactive is a provider of broadband cable access product for homes and businesses. And Elastic Networks is a Nortel spinoff that developed DSL technology called EtherLoop. EtherLoop is a high-bandwidth voice/data technology that runs on a regular phone line at up to 10M bit/sec over a 3,000-foot line.

Nortel's access operations accounted for 7.7% and 6.9% of the company's revenue for fiscal 2000 and the first quarter of 2001, respectively. Nortel will take a $2.6 billion after-tax charge in the second quarter to shutter these businesses. About $750 million of the charge is associated with a write down of goodwill from the acquisitions of Promatory and Sonoma.

Nortel said it expects to "exit, dispose of or otherwise transition" its ownership in these various businesses and investments over the next 12 months.