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George Riedel talks about today’s news
A key part of today’s Nortel news was the announcement of the intent to explore the divestiture of Nortel’s Metro Ethernet Networks business. This signals a shift in strategy for Nortel. George Riedel, Nortel’s Chief Strategy Officer, is central to this strategy. Yesterday, I asked George for his thoughts on the news, and what the potential sale of Nortel’s MEN business will mean for Nortel.
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Nortel Chief Strategy Officer George Riedel
Q: Nortel is announcing a major change in strategic direction. Why?
George Riedel: Three reasons 1) We have a very attractive asset in a strongly performing MEN business 2) This optical/carrier Ethernet segment of the industry needs consolidation and the time is ripe 3) We need to focus more resources on fewer bets and this gives us the wherewithal to do so.
Q: Why the Metro Ethernet Networks business?
Riedel: Our MEN business is a premium asset. We have a strong customer base in optical, we have a 40/100gig solution that uses technology unique to the industry and has a real time-to-market advantage with a compelling economic proposition to customers. With the pending move by carriers to 40/100gig in the short term, an expanding use of this technology into other applications (e.g. routers, submarine), and a longer term convergence of packet optical platforms, we think there will be substantial interest in the business. I also think there is some unrealized value in the MEN business that can be unlocked. From a timing standpoint, we’ve built strong momentum, including over 25 wins and a range of successful trials in Tier 1 Service Providers such that we think there are a number of prospective parties who will see this as a very attractive asset.
Q: What timeframe do you expect to find an interested buyer?
Riedel: The exact timing is hard to predict, but again we think there will likely be considerable interest. That said, we won’t be able to comment on progress publicly.
Q: Have you already had conversations with companies on a possible divestiture?
Riedel: Yes, we have started those conversations and no I won’t “name names”. What I can say is that one of the historical challenges of industry consolidation is preventing “leakage” - where the potential benefits of a consolidation are eroded by competitors who offer to “rip and replace” the base with a comparable offer. With our technology advantage now in ASICs for 40G and a follow-on 100G effort we are comfortable that the value proposition will continue to have real differentiation.
Q: How do you expect the divestiture of the MEN business to improve Nortel’s position?
Riedel: We’ve made great strides in improving the foundation and fundamentals of our business over the last few years. The difference in operating rhythm from when I first joined Nortel is night and day. Like others in the industry and financial community who have been vocal about Nortel’s need to do fewer things with greater focus and more depth, we have been looking for the right value creating opportunity and timeframe to act. This change enables such an outcome by strengthening our balance sheet and providing capital for fewer growth investments. Yes it’s a tough decision, but one built on the strength of the performance of a business after several years of investment and improvement. We are going to do fewer things and do them better, and we are going to align to the realities of scale and investment that it will take to win in this rapidly evolving market.
Q: How will this impact the team running MEN? What about customers?
Riedel: Philippe Morin, the president of the business, has built a very strong team who will continue to drive the business and deliver against various customer commitments, including plan of record and ongoing trials. He and the team remain focused on driving growth and performance improvement.
However, providing a forum for comments (good or bad) is a critical part of what we’re doing here - and they do get read by Nortel execs.
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September 17th, 2008 at 1:54 pm from Riedel Explains the MEN Sale | All About Nortel
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