Summary
I like WiMAX but Nortel’s decision is correct for Nortel. The decision does not mean that WiMAX has no market.
Analysis
A thing to understand regarding restructuring is that restructuring means making tough calls. Nortel’s decision was difficult. Effectively, Nortel reduced the size of its potential customer base. You may also call this strategic focusing. Instead of focusing on eveyrthing it is foucsing on a few areas of business.
Investors need to understand that Nortel needed to look at the addressable customer base for WiMAX. The odds are that Nortel realized that to get the biggest bang for their dollars going the LTE route was better for Nortel. Think about it, the company’s principal customers are large carriers, and most of the large carriers in North America are going to install LTE. When the economy emerges from the recession next year, Nortel has to make a bet on its chances of making a sale. The larger the base of customers the better the chances it will make a sale. Of course this is all based on its current understanding of which carrier supports which 4G technology. Is it a crap shoot? You bet it is.
Despite my support for WiMAX, as a restructuring professional all I can say is: Nortel has to go with the flow.
Nortel is not in a position to promote or influence technology direction or even the market. The company needs to focus its energies responding to customers’ needs. There is some truth to the idea that companies that market like wild during a recession or a downturn do better when the recession or downturn ends. However, that thinking concerns consumer products companies. Nortel is not a consumer products company. In the vernacular of old time telephony professionals: Nortel is a “big iron” equipment maker.
WiMAX supporters should not be depressed. LTE supporters should not be cheering. What Nortel is doing is what any restructuring professional would tell the company to do and that is focus your resources on those things which will give you the greatest likelihood of generating cash in the shortest amount of time. Nortel is trying to emerge from bankruptcy during a recession. This is not about one technology winning over another. If the economy gets any worse, do you think a carrier will want to spend billions on a new technology or hundreds of millions on an existing one? In other words, you can look at this in many ways. This story is really about survival of a vendor.
Keep in mind, Nortel is likely facing unfriendly credit markets and equity markets. The key thing for Nortel to do is be “realistic”.
First and foremost Nortel needs to conserve cash. Simultaneously, Nortel needs to generate revenue. The last thing Nortel needs to do is think merger and acquisition. Most companies that go that route first fail in their attempts to emerge from bankruptcy. The reason is simple: the company fails to stabilize the company first. If you want to “sell the pig then dress it up first". In other words clean it up first.
Bottom line is Nortel needs to stabilize and then clean up the company. No one wants to buy a company that needs to be cleaned up; they want to buy a company with as few problems as possible. No buyer wants your mess.
