I just got off the phone with John McHugh, VP, Enterprise Data Solutions at Nortel, who filled me in on Nortel's view of the sale, announced late yesterday, of its Layer 4-7 data networking gear, to Radware. His bottom line: L4-7 products were a "nice to have," but not core to Nortel's mission in selling data infrastructure. Companies buy Layer 4-7 equipment not as a generic capability, the way you would buy a router or switch to handle your IP traffic load in aggregate. Instead, the use of these higher-layer products "has a lot to do with the applications in a datacenter," McHugh said. In other words, the equipment and its selection is tied to a specific application that the customer is seeking to accelerate or otherwise give special handling to.
"It was a defocuser at this point in time," McHugh said of the L4-7 portfolio, adding that the plans to sell this product line were already in the works before Nortel filed for bankruptcy protection last month.
McHugh said the company was not disclosing the sale price, but that this information would be contained in documents that will be filed within the next 24-48 hours--so we'll know fairly soon. Radware is a "stalking horse" buyer, which in bankruptcy parlance means they've agreed to acquire the L4-7 business at a given price, but that competing buyers may come in and bid higher for the asset.
(Update: The Ottawa Citizen is reporting that the sale price was $17.65 million, less than any of the speculation suggested.)
Given the fact that Nortel has, since the bankruptcy filing, announced its intention to get out of the WiMAX and now Layer 4-7 business, I thought it was reasonable to ask John McHugh whether Nortel might not wind up exiting the enterprise data networking business altogether (a question he took in stride, considering that's his portfolio).
McHugh said that data networking is still a market with "millions of customers" and is still a key part of Nortel's enterprise business. He said Nortel is in the process of "centering itself around its key assets," of which the routing/switching line is one. McHugh maintained that Nortel's voice and data businesses are synergistic.
You have to wonder, though. In the last quarterly report Nortel filed before the bankruptcy, Nortel showed its enterprise data business slipping. Revenues for "enterprise data networking and security" solutions fell to $194 million in 3Q08, from $197 million the previous quarter and $245 million for 3Q07. The year-to-date total in 3Q08 was $574 million, down from $664 million for the first nine months of 2007.
One final note, an aside relevant to my earlier post on this move by Nortel. I noted with not very subtle sarcasm that various rumors have Radware buying the Layer 4-7 assets for anywhere from $20 million - $50 million, which is a far cry from the $7.8 billion Nortel paid in 2000 to acquire Alteon WebSystems, on whose technology those L4-7 products are based.
Pat Cooper, who does a terrific job on PR for Nortel and, in fact came to Nortel from Alteon, called me on the snark. Pat said that after the acquisition, Alteon intellectual property and technology made its way into the DNA of Nortel, so that it's unfair, he said, to represent this as Nortel selling for $50 million or so an asset it bought for $7.8 billion. He acknowledged that it's not as though Nortel is retaining $7.3 billion worth of I.P. from Alteon, but rightly pointed out that valuations were very different in 2000 than they are today.
Which is true, and Nortel wasn't the only company to pay that kind of money more than once. Which, indeed, is one reason (though certainly not the main reason) why Nortel finds itself where it does today.
