Nortel Sells UMTS Unit
Nortel has agreed to sell its UMTS unit to - surprise, surprise - Alcatel for $320-million. It was only a matter of time before Nortel sold the money-losing business, and Alcatel seemed to be the most logical buyer. While Nortel can certainly use the $320-million, it is below the expectations of analysts, who were looking for about $500-million. Nortel held a conference call today at 9 a.m. to provide an “update on advances to the execution of its business planâ€. According to analysts, Nortel's UMTS access business was losing about $200-million a year on sales of $400-million to $500-million. No wonder Nortel wanted out so badly. With UMTS out of the way, Nortel CEO Mike Zafirovski can now focus on other parts of the business that don't meet his 20% market share benchmark. At the end of the day, Nortel will be a smaller player but, hopefully, profitable.
Update: For more views on Nortel, check out All Nortel, All the Time.
September 1st, 2006 at 11:08 pm
Mark,
It would be interesting to understand how the analysts arrived at their estimate of the deal's value. In fact, I had previously heard that Nortel was expecting between $1.3b and $1.6b for the deal. In an early August rumour of the deal in Unstrung, they said such a deal was might fetch $1.9b, and in a release today, they claimed that others in the French investment community had expected the sale would bring $1.25b.
All these estimates are a far cry from the $320m that Nortel received and the $500m that others were expecting.
Given Alcatel's greater ability to deal effectively with engineering and labour costs in France (the centre of Nortel's UMTS labs and business), and considering the technology that they are gaining, as well as the fact that the acquisition bumps Alcatel up into the number 3 market position, I would have expected the business to be worth significantly more to Alcatel.