Today Nortel announced it has shed its 3G UMTS radio access assets and sold them to Alcatel. On a conference call with financial analysts and the media, Nortel President and CEO Mike Zafirovski was quick to point out that his company remains committed to next-generation mobility through its remaining GSM access and core business, Long Term Evolution (LTE), WiMAX as well as its CDMA businesses.
This seems to make sense for Nortel and Alcatel. On the one hand, Nortel is shedding a division that doesn’t make money and in an area where it has less than 20% market share. The 20% mark is where Zafirovski draws the line. Any less share than that and the business unit has a limited life at Nortel.
Shedding the unit makes sense for Nortel from a business standpoint but I can’t help but wonder what synergies are lost when an important unit such as this gets sold off.
I don’t have all the answers of course but I wonder how much smaller Nortel plans on getting. The ability for the company to share R&D costs decreases as similar divisions get spun off.
The flipside is a leaner company which in a growing telecom market could perhaps do even better if there is less divisions to have to worry about.
The question of scale must come up often at Alcatel where they are currently approving the Lucent merger and now this. Is there any stopping Alcatel? The challenge the French communications leader has is one of digestion – and how do you digest Lucent and part of Nortel all at once.
Other telecom players are taking note and fear the combined company but also point out it will take a year to integrate Lucent.
As always the telecom market is full of excitement and this announcement just shows you how things can change in a day and before you know it companies get repositioned and once again customers, the media and analysts are trying to make sense of where the communications market is heading.